FEASIBILITY ANALYSIS
A
fter identifying the business requirements and desired system the next step is
to understand the feasibility of those requirements. Feasibility analysis is used
to determine that whether to proceed the project also establishes a high-level
view of the intended project and determines its goals. Additionally, feasibility analysis
also discusses the important risks associated with the project that must be identified.
There are 3 techniques in feasibility analysis;
1. Technical Feasibility:
Familiarity with Application
Familiarity with Technology
Project Size
Compatibility
2. Economic Feasibility:
Development costs
Annual operating costs
Annual Benefits (Cost savings and revenues)
Intangible cost and benefits
3. Organizational Feasibility:
Project champions
Senior management
Users
Other stake holders
Is the project strategically aligned with business?
T
echnical Feasibility: Determines whether a proposed solution for project can
be implemented with available hardware, software, and technical resources. If
familiarity with application and technology are less then the project will face
higher risk. If project size is large and compatibility is harder then the project will face
higher risk as well.
In our case the familiarity is moderate because some of the employees in IT department
have knowledge of the application and technology that are going to use. Compatibility
and project size may be the disadvantages of the project because the company has a
paper-based (traditional) system and the project covers all the stores as well as
headquarter around Texas.
Conclusion of this technical feasibility leads us that hence the project has moderate risk
the technical aspect is feasible to establish the system to our company.
O
rganizational Feasibility: The 2nd technique used for feasibility analysis is to
assess the organizational feasibility of the system. Organizational feasibility
means the ability, desire, and willingness of the stakeholders to use, support,
and operate the proposed computer information system. The stakeholders include
management, employees, customers, and suppliers. The stakeholders are interested in
systems that are easy to operate, make few, if any, errors, produce the desired
information, and fall within the objectives of the organization.
In our case this project has a moderate risk. The objective of the system, which is to have
control on our inventory (database) and to increase sales, is aligned well with the senior
management’s goal of increasing sales of the company. Additionally the establishment of
the e-commerce service also will help to our marketing department’s goal to reach more
customers and expand the sales.
E
conomical (or Financial) Feasibility:
For a business entity, this is by far the most important kind of feasibility. This
feasibility is done to evaluate the financial viability of the proposed project or
changes in the existing systems. Expected financial benefits are matched against expected
cost and if the former outweigh the latter, depending upon other conditions and
constraints, the project is adopted
In case of Champion Toys, a feasibility analysis was carried out which resulted in the
favorable indication for the project. This is detailed in the following section
2006
2007
2008
Increased Sales
$180,000
$210,000
Cost Savings
$ 30,000
Total Cash Inflow
2009
2010
Total
$250,000
$270,000
$910,000
$ 30,000
$ 30,000
$30,000
$120,000
$210,000
$240,000
$280,000
$300,000
$1,030,000
0
0
0
0
0
Hardware
$22,000
$22,000
$22,000
$22,000
$88,000
Software
$13,000
$13,000
$13,000
$13,000
$52,000
Maintenance /labor
$45,000
$45,000
$45,000
$45,000
$180,000
Total Operation cost
$80,000
$80,000
$80,000
$80,000
$320,000
Net Cash flow
($500,000)
$130,000
$160,000
$200,000
$220,000
$210,000
($471,698)
$122,641
$142,399
$167,923
$174,260
$135,525
Cash Inflow
Cash Outflow
Developmental Cost
Hardware
$155,000
Software-Licenses $ 25,000
Labor
$320,000
Total
$500,000
Operational Cost
Net Present
Value
Net Cash inflow: (1,030,000 – 820,000)
= $210,000
Return on Investment (ROI): 210,000/820,000
= 25.61%
Payback Period:
= 3 years and 4 months
Net Present Value
= $135,000
Average return on investment is about 6.4% per annum. The viability of this rate of return depends upon the
rates on other investment opportunity available and its overall effect on the economic health of the business i.e.
it should also be considered if this project is not adopted, will it cause any impairment to business sales and
growth in short and long run?
Also timing of return is very important. The sooner the big amount of cash inflow is, the better it is. In this case
discounting all net cash flows at 6%, net cash flow results in positive amount of $ 135,000 which is
commendable at this project size.
Payback period is relatively longer i.e. 3 years and 4 months which should be considered along with other
factors in a scenario of 4 years.
All of the above measures are quantitative and should be evaluated in combination with other factors specially
risk factors must be considered because this in an investment in technology, the ever-changing mode technology
should be given proper consideration
Moreover, consideration should also be given on market trends in the industry. Even in the presence of a
healthy information system, change in the market trend can play havoc with the business and information
system alone can not come to rescue.