Part I: System Analysis
Fundamentals
Lecture Note 3
Determining Feasibility
Systems Analysis and Design
Kendall & Kendall
Sixth Edition
Major Topics
• Project initiation
• Determining project feasibility (可行性)
– Technical feasibility
– Economic feasibility
– Operational feasibility
• Project scheduling
• Managing project activities
• Manage systems analysis team members
Those are all important capabilities for the system analyst to
master. They are considered Project Fundamentals.
CS206 System Analysis & Design
Note 3 By ChangYu
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Project Initiation
Projects are initiated (提出) for two broad reasons:
– Problems that lend themselves to systems
solutions.
– Opportunities for improvement through
• Upgrading systems.
• Altering systems.
• Installing new systems.
Both situations can arise as organization adapts (適應)
to and copes (應付) with nature, evolutionary change.
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Organizational Problems
Checking output, observing employee behavior and listening to feedback
are all ways to help the analyst pinpoint (明确指出) systems problems and
opportunities.
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Project Selection
• Projects come from many different sources and for many
reasons. You must be clear in your own mind about the
reasons for recommending (推荐) a systems study on a project
that seems to address a problem or could bring about
improvement.
• Prospective (未來的) projects need to be examined from a
systems perspective in such a way that you are considering
the impact (含意) of the proposed change on the entire
organization. The various subsystems of the organization are
interrelated and interdependent. A systems project cannot be
contemplated (籌劃) or selected in isolation (孤立) from the rest
of the organization.
• There are five specific criteria for project selection.
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Criteria (條件) for Selection of Systems Projects:
1. Backing (支持) from management
Nothing can be accomplished without the endorsement (批准) of the people who
eventually (最後) will foot the bill.
2. Appropriate (撥出) timing of project commitment (實行)
Ask yourself if the business in presently capable of making a time commitment for
installation of new systems or improvement to existing ones.
3. Possibility of improving attainment (達成) of organizational goals
The project should put the organization on target, not deter it from its finally goals.
4. Practical in terms of resources for systems analyst & organization
Some projects will not fall within your realm (框架) of expertise (專業) and you must
be able to recognize them.
5. Project
is worthwhile (值得) compared to other ways organization
could invest resources
Remember that when a business commits (託付) to one project. It is useful to view all
possible projects as competing for the business resources of time, money and people.
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Determining Objectives
• The system analyst serves as catalyst (催化剂), supporting expert
primarily by being able to see where processes can be
improved. Improvements to systems can be defined as
changes will result in incremental (增值).
• There are many possibilities for improvements including:
– Speeding up a process.
– Streamlining a process through the elimination of
unnecessary or duplicated steps.
– Combining processes.
– Reducing errors in input through changes of forms and
display screen.
– Reducing redundant storage.
– Reducing redundant output.
– Improving system and subsystem integration.
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• The corporate objectives are affected by
improvement to information systems. These
corporate objectives include:
– Improving corporate profits.
– Supporting the competitive strategy of the
organization.
– Improving cooperation with vendors and partners.
– Improving internal operations support so that goods
and services are produced efficiently (高效率) and
effectively (卓有成效).
– Improving internal decision support so that decisions
are more effective.
– Importing customer service.
– Increasing employee morale (士氣).
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Feasibility Impact Grid (FIG)
• The system analyst can be able to
–
–
–
–
–
Notice opportunities for improvements,
Prepare the better sources of information about improvement,
Help expertise to determine whether the improvement is worthwhile,
How it can be implemented.
Feasibility study is not a full-blown systems study. It is used to gather
broad data for the managements to make a decision.
• A feasibility impact grid (FIG) is used to :
– Assess (估价) the impact of any improvements to the
existing system.
– It can increase awareness of the impacts made on the
achievement (達到) of corporate objectives.
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• Current or proposed
systems are listed on the
left. They are categorized
into three system types:
ecommerce systems,
management information
systems (MIS), and
transaction processing
systems (TPS).
• Objectives are listed on
the top.
• Red check marks in the
grid show that a positive (
確實的) impact can be made
when a system
improvement is made.
• Green check marks
indicate that the system
has been implemented
and that the improvement
positively impacted the
process objective.
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• This grid emphasizes the
point that improvements to
Management Information
System greatly affect
corporate objectives.
• You may recall that
traditional MIS did not affect
many process objectives, but
on the other hand, they do
affect most of the corporate
objectives.
• You may recall that TPS did
not affect many corporate
objectives, but they do affect
most of the process
objectives.
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• It is essential that analysis systematically go through the steps in
developing FIG. By understanding process and corporate objects,
an SA realizes
• Why he is building systems and
• Comprehends what the importance of designing efficient
and effective systems might be.
• SA can communicate those impacts to the decision makers
evaluating the project.
• The objectives of the project need to be cleared formally on
paper as well as informally by taking to people in the business.
Find out
• What problem they believe the systems project would solve
• What situation it would improve and
• What their expectations are for the propose system.
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Determining Feasibility
• A feasibility study assesses the operational,
technical, and economic merits (价值) of the
proposed project.
• There are three types of feasibility:
– Technical feasibility.
– Economic feasibility.
– Operational feasibility.
Economic
Technical
Operational
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Technical Feasibility
• Technical feasibility assesses whether the current
technical resources are sufficient (足夠) for the new
system.
• If they are not available, can they be upgraded or
add to provide the level of technology necessary for
the new system.
• At this point the expertise of system analysts is
beneficial, because by using their own experience
and their contacts with vendors, system analysts
will be able to answer the question of technical
feasibility.
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Economic Feasibility
• Economic feasibility determines whether the time and
money are available to develop the system.
• Includes:
– the Systems analyst’ time
– Cost of doing a full systems study
– Cost of business employee time for study
– Estimate (評估) cost of new equipment & hardware.
– Cost of packaged software or software development
• The business must be able to see the value of the
investment.
– If short-term costs are not overshadowed by long-term gains (效益) or
– Produce no immediate reduction in operating costs,
the system is not economically feasibility.
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Operational Feasibility
• Operational feasibility determines if the human
resources are available to operate the system
once it has been installed.
• System analyst should let users know
– Which interfaces are possible
– Which will satisfy their needs
• System analyst also listed carefully to
– What users really want
– What it seems they will use.
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Assessing Economic Feasibility
Economic Feasibility: A process of identifying the
financial benefits and costs associated with a
development project.
• Economic feasibility is often referred to as CostBenefit Analysis.
– For development of a project, SA should provide several useful
worksheets for recording costs and benefits based on the techniques
for making cost-benefit calculations.
• These worksheets and techniques are used after each
SDLC phase as the project is reviewed in order to
decide whether to continue, redirect, or kill a project.
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Determining Project Benefits
Tangible Benefit: A benefit derived from the creation of an
information system that can be measured in dollars and
with certainty. Example: reduced personnel expense (費用), lower
transaction costs, higher profit margins (高利潤).
• Most tangible benefits will fit within the following
categories:
– Cost reduction and avoidance
– Error reduction
– Increased flexibility
– Increased speed of activity
– Improvement of management planning and control
– Opening new markets and increasing sales opportunities
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Example:
After collecting information from users of the current
customer tracking system. We summarized on a
tangible benefits worksheet.
TANGIBLE BENEFITS WORKSHEET
Customer Tracking System Project
Year 1 through 5
A. Cost reduction or avoidance
B. Error reduction
C. Increased flexibility
D. Increased speed of activity
E. Improvement in management planning or control
F. Other
TOTAL tangible benefits
$ 4,500
$2,500
$7,500
$10,500
$25,000
$0
$50,000
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Intangible Benefit: A benefit derived from the creation of an
information system that cannot be easily measured in dollars
or with certainty.
Intangible Benefits from the Development of an Information System





Competitive necessity
More timely information
Improved organizational planning
Increased organizational flexibility
Promotion of organizational learning
& understanding
 Availability of new, better, or more
information
 Ability to investigate more
alternatives
 Faster decision making
 Information processing
efficiency
 Improved asset utilization
 Improved resource control
 Increased accuracy in clerical
operations
 Improved work process that
can improve employee morale
 Positive impacts on society
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Determining Project Costs
Tangible costs: A cost associated with an
information system that can be measured in
dollars and with certainty.
– E.g. Hardware costs, labor costs, operational costs
(employee training & building renovations (裝修)) .
Intangible costs: A cost associated with an
information system that cannot be easily
measured in dollars or with certainty.
– E.g. Loss of customer goodwill (善意), employee
morale (士氣), operational inefficiency (無效的).
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One-time costs and Recurring costs
One-time costs: A cost
associated with project
start-up and
development, or system
start-up.
ONE-TIME COSTS WORKSHEET
Customer Tracking System Project
Year 0
A. Development costs
B. New hardware
C. New (purchased) software, if any
1.Packaged applications software
2.Other
D. User training
E. Site preparation
F. Other
$20,000
$15,500
$5,000
$0
$2,500
$0
$0
TOTAL one-time cost
Recurring costs: A cost
resulting from the
ongoing evolution and
use of a system.
$42,500
RECURRING COSTS WORKSHEET
Customer Tracking System Project
Year 1 through 5
A. Application software maintenance
B. Incremental data storage required: 20MB x $50
(estimated cost/MB = $50)
C. Incremental communications (lines, messages)
D. New software / hardware leases
E. Supplies
F. Other
$25,000
$1,000
TOTAL recurring cost
$28,500
$2,000
$0
$500
$0
The Time Value of Money
The Time Value of Money (TVM): refers to the
concept of comparing present cash outlays (花費)
to future expected returns.
Discount rate: The rate of return used to
compute the present value of future cash flows.
Present value (PV): The current value of a future
cash flows.
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Example
To buy a used car from an acquaintance and she asks that you
make three payments of $1,500 for 3 years, beginning next year,
for a total of $4,500. If she would agree to a single lump sum
payment at the time of sale (and if you had the money!), what
amount do you think she would agree to? Should the single
payment be $4,500? Should it be more / less?
To answer this question, we must consider the time value of
money. Most of us would accept $4,500 today rather than
three payments of $1,500. Because a dollar today is worth
more than a dollar tomorrow or next year, because money
can be invested. The rate at which money can be borrowed
or invested is called the discount rate for TVM calculations.
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* Suppose the seller could put the money received for the sale of
the car in the bank and receive a 10% return on her investment.
* The formula for the present value:
where PVn is the present value of Y dollars n years from now
when i is the discount rate.
Net Present Value (NPV) = PV1 + PV2 +PV3
= 1363.65 + 1239.60 + 1126.95
= $3730.20
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* Calculate the ROI (Return On Investment).
* Break-even analysis: To discover at what point benefits equal
costs, i.e. when break-even occurs.
Using the data in the example to calculate the Break-Even Point:
15,303 – 9,139
Break-Even Ratio =
15,303
= 0.404
Therefore, project break-even occurs at approximately 2.4 years.
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A graphical representation of this analysis is shown here.
•
The objective of the
Break-Even Analysis
is to discover at what
point benefits equal
costs (that is when
Break-Even Analysis for Customer
Tracking System (Pine Valley Furniture)
break-even occurs).
•
It is clear to know
the cost-benefits of a
proposed system and
possible to make an
informed decision
regarding approval
or rejection of the
service request.
Project Break-Even Point
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The summary spreadsheet reflecting the present value calculations of all benefits
and costs.
Initial
investment
$180,239 - $145,236
$44,643 - $25,446
$44,643 - $67,946
$35,003
$145,236
Break-Even Ratio
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There are many techniques that you can use to compute a project’s
economic feasibility. This table describes three commonly used
techniques for conducting economic feasibility analysis.
Analysis Technique
Description
Net Present Value
(NPV)
NPV uses a discount rate determined from the
company’s cost of capital to establish the
present value of a project. The discount rate is
used to determine the present value of both cash
receipts and outlays.
NPV = PV1+ PV2 +PV3
PVn = Y * (1/(1+i)n )
Return on Investment
(ROI)
ROI = NPV/NPV of all Costs
Break-Even Analysis
(BEA)
BE Ratio = (YearlyNPV-OverallNPV)/YearlyNPV
ROI is the ratio of the net cash receipts of the
project divided by the cash outlays of the
project. Trade-off analysis can be made among
projects competing for investment by comparing
their representative ROI ratios.
BEA finds the amount of time required for the
cumulative cash flow from a project to equal its
initial and ongoing investment.
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Review Question
• What are the five major project fundamentals?
• List five criteria for systems project selection?
• Which three principal ways is the system projects
feasibility assessed in?
• Define the terms tangible benefit, intangible
benefit, tangible costs, intangible costs, one-time
costs, recurring costs, discount rate and present
value.
• What is the time value of money?
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