CSIS 3600 Systems
Analysis and Design
Feasibility Analysis
Intellectual Property of Dr. Meg Murray, dated September 2002
Feasibility
Feasibility studies the viability and the
ability to successfully complete a
proposed project
Feasibility studies often provide
justification for the business case
They answer the question: Is the
project worth doing?
Categories of Feasibility
Feasibility is often divided into categories
such as:
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Economic
Technical
Operational
Schedule
Legal and Contractual
Political
Some areas of feasibility are more important
for some projects than for others
Technical Feasibility
Technical feasibility is often viewed in relation
to technical risk.
Technical risk is contingent on four factors:
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project size
project structure
maturity (and standardization) of the hardware,
software, development tools, etc.
development group's experience with the
application and technology area
user group's experience with development
projects and application area.
Technical Feasibility and Risk
Some rules related to technical contingencies:
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Large projects are riskier than smaller projects.
A system in which the requirements are easily
obtained and highly structured will be less risky
than one in which requirement are messy, illstructured, 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.
Less risky when the user group is familiar with the
systems development process and application area.
Degree of Risk
Low Structure
High Structure
High Familiarity
with
Technology/
Application
Area
Large
Project
Low Risk
Low Risk
Small
Project
Very Low
Risk
Very Low
Risk
Low Familiarity
with
Technology/
Application
Area
Large
Project
Very High
Risk
Medium
Risk
Small
Project
High Risk
Medium-low
Risk
Applegate, McFarlan and McKenny, Corporate Information Systems Management, 2000
Organizational Feasibility
Organizational feasibility is assessing the
likelihood that the project will attain its
desired objectives.
It addresses whether the problem is worth
solving and whether there is 'buy in' from the
user community and project champion.
It also assesses the impact the proposed
system will have on the organization (is it too
big a change, is the organizational
environment supportive of the impact the
system will have....).
Schedule Feasibility
The main objective of scheduling feasibility is
to assess whether the project can achieve the
specified deadlines?
And if not, what will the impact be?
Scheduling feasibility also looks at the major
factors that might attribute to project delays
(loss of development staff, etc.)
Legal and Contractual
This area looks at any legal ramifications related to the
development of the system.
Possible considerations in this area include:
 copyright infringement
 intellectual property rights
 antitrust legislation (which might limit the creation of
systems to share data with other organizations)
 reporting standards (financial, patient information, etc.)
 nondisclosure infringements, etc.
These are all areas that need to be thought about and
system developers should be aware of the rules that
govern their industry and what types of regulations they
must follow.
Political Feasibility
Political feasibility assesses how key stakeholders
in the organization view the proposed system.
This is especially important if the system affects
distribution of information which impacts the
distribution of power within the institution.
Stakeholders not supporting the project may take
steps to block, disrupt or change the focus of the
project.
The word of advice: know what you are dealing
with up front to avoid conflict and confrontation
later.
Economic Feasibility
Economic feasibility is the financial
assessment of the benefits of the project.
There are several methods that are used to
assess the financial viability of a project.
These are covered in introductory finance
courses (time value of money, expected
return on investment, break-even analysis,
etc.). This type of analysis is called a costbenefit analysis and focuses on the 'bottom
line.'
Economic Feasibility - Tangible
vs Intangible
In economic feasibility, there are two areas
that should be considered: tangible benefits
and intangible benefits.
Tangible benefits can be measured in dollars.
Intangible benefits can't be measured with
certainty and are hard to quantify (employee
morale, reduction of waste, etc.).
Most feasibility studies focus on the tangible
but include some form of narrative statement
related to intangible benefits.
One Time vs Recurring Costs
One time costs are those costs that are
associated with project start-up and initiation.
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Include hardware, software, development
environments, etc.
Recurring costs are those costs that occur on
a regular or recurring basis
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Includes leases, ISP or other subscription based
services, replacement of worn equipment,
software maintenance licenses, etc.
Cost-Benefit Analysis
The best way to start an economic feasibility study is
to list all the benefits of the proposed system and
then all the costs.
Certain costs are known (hardware, etc.), while
others are estimated (development costs).
Quantifiable benefits are usually estimated (reduced
personnel measured by salary and benefit costs).
The final goal is to compare the estimated costs to
the estimated benefits.
The process involves much estimation but you try to
use the best educated (or informed) analysis that you
can.
Cash Flow Method for Cost
Benefit Analysis
Cost-Benefit Analysis w/data
Return on Investment (ROI)
ROI is the ratio of cash receipts divided
by cash outlays
Predicts a rate of return for the
investment
Often a goal is for the ROI to be above
the rate at which the money would earn
if invested in other opportunities
Return on Investment
Calculation
RETURN ON INVESTMENT EQUALS
Total (benefits - costs)
Divided by
Total costs
ROI Example
Some Techniques to Assess
Economic Feasibility
Time Value of Money
 Predicated on the principle that the value of
money changes over time
 Compares present cash outlays to future expected
returns
 Common measurement - Net Present Value (NPV)
 Present Value is the value of a dollar in the future
(usually expressed in years)
 It is calculated based on a discount rate
(percentage for borrowing or investing)
n
 The formula for the PV is 1/(1+i)
 i = discount rate; n = year
NPV Example
PVn of a dollar amount =
Y * [1/(1+i)n] [is the PV factor]
Where:
Y = dollars under consideration
i = discount rate (cost of capital or rate to borrow or
invest)
n = time usually expressed as number of years
NPV = Sum of the Present Value of Benefits –
Sum of Present Value of Costs
PV Example
PV = Y * [1/(1+i)n]
What is the present value of $1,000 in 5
years if the discount rate is 5%? 10%?
Answers
PV = 1000*[1/(1+.05)5] = $783.53
PV = 1000*[1/(1+.10)5] = $620.92
NPV Example
NPV is the sum of the PVs over a period
of time or NPV = Sum of PVs
 PV year 1 + PV year2 + PV year3…
Overall NPV = NPV of Benefits – NPV of
Costs
ROI with PV Example
ROI = Overall NPV/NPV of all Costs
Where:
Overall NPV =
NPV of all benefits - NPV of all Costs
Ex from spreadsheet:
$97,264.52/$2,405,651.56 = 0.0404
Break-Even Analysis
Projects the time it takes for the cumulative
cash flow from a project to equal the
investment
The time at which the system pays for itself
Identified by the first year of Overall Positive
Cash Flow
Cost = Revenue or Costs = Benefits
Example from spreadsheet:
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Between year 4 (benefits = $304,822.27)
and year 5 (costs = $97,264.52)
BEA Example
Overall cash flow represents cash flows for all
preceding years
Use the figures for the year with first positive
overall NPV cash flow (the first year where
benefits exceed costs)
Ratio results indicate the fractional part of the
year at which BE occurs Break-Even Ratio =
Yearly NPV cash flow - Overall NPV cash flow
Yearly NPV Cash Flow
BEA Fractional Year Example
Example: from spreadsheet
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($304,822.27-97,264.52)/304,822.27)= .68
Actual breakeven point is 4.68 years
Quote of the Week
"Far better an approximate answer to the
right question than the exact answer to
the wrong question, which can always
be made precise."
John Tukey, of Princeton University