PowerPoint Presentation for Dennis, Wixom, & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved. Planning - Project Initiation

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Key Ideas An opportunity to create business value from using information technology initiates a project. Feasibility analysis helps determine whether or not to proceed with the IS project. Projects are selected based on business needs and project risks.

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Key Ideas The project sponsor is a key person who identifies business value to be gained from using information technology. The approval committee reviews system requests from groups throughout the organization and selects projects for the benefit of the business.

PowerPoint Presentation for Dennis, Wixom, & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved. IDENTIFYING PROJECTS WITH BUSINESS VALUE

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved How Do Projects Begin? Business needs should drive projects. Project sponsor recognizes business need for new system and desires to see it implemented. Business needs determine the system’s functionality (what it will do). The project’s business value should be clear.

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved System Request A document describing business reasons for project and system’s expected value. Lists project’s key elements Project sponsor: Key person Business vs. IT Business need New opportunities Improving an existing situation Business requirements (very high level) – driven by business needs Business value Quantitative (Tangible) Qualitative (Intangible) Special issues or constraints Time constraints Technical constraints others

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved System Request Examples Project sponsor VP of Marketing Business need Reach new market of customers Improve service to existing customers Business requirements Provide web-based shopping capability and offer the following main functionalities: Register as a new customer Search for available products and prices Select products and buy them online … Business value $750,000 in new customer sales $1.8M in existing customer sales Increase customer satisfaction Special issues or constraints System must be operational by holiday shopping season

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Preliminary Project Acceptance System request is reviewed by approval committee for each project – portfolio of projects Based on information provided, project merits are discussed. Some projects are accepted and will need additional investigation – the feasibility analysis.

PowerPoint Presentation for Dennis, Wixom, & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved. FEASIBILITY ANALYSIS

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Feasibility Analysis Detailed business case for the project Technical feasibility Economic feasibility Organizational feasibility Legal feasibility Compiled into a feasibility study Feasibility is revised throughout the project

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Technical Feasibility: Can We Build It? What are the risks ? Users’ and analysts’ familiarity with the business application area Familiarity with technology Have we used it before? How new is it? Project size Number of people, time, and features Compatibility with existing systems

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Economic Feasibility Should We Build It? Identify costs and benefits Assign values to costs and benefits Determine cash flow Determine some Key Financial Indicators Net present value (NPV) Total present value of (future) benefits compared to the total present value of (present and future) costs Return on investment (ROI) The rate of return earned on the money invested in the project Break even point (BEP) The time when the cumulative project benefits exceed the cumulative project costs

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Example Costs and Benefits for Economic Feasibility

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Tangible vs. Intangible Costs Tangible Costs – Includes revenue that the system enables the organization to collect, such as increased sales. Intangible Costs – Are based on intuition and belief rather than “hard numbers.”

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Assign Cost and Benefit Values Difficult, but essential to estimate Work with people who are most familiar with the area to develop estimates Intangibles should also be quantified If possible! If intangibles cannot be quantified, list and include as part of supporting material

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Determine Cash Flow: Assign Values to Costs and Benefits – Simple Cash Flow Method

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Assess Financial Viability – Net Present Value NPV =  PV(future cash inflows) –  PV(future cash outflows) PV = Cash flow amount (1 + interest rate) n, where interest rate = required return n = number of years in future

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Determine NPV If NPV >= 0, Project is OK If NPV < 0, Project is unacceptable

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Assess Financial Viability – Return on Investment ROI = NPV  PV(cash outflows)

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Assess Financial Viability – Break Even Point How long before the project’s returns match the amount invested The longer it takes to break even, the higher the project’s risk. BEP = Period. net cash flow – Cumulative net cash flow Period. net cash flow Use the first year where the project has a positive cash flow

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Organizational Feasibility If we build it, will they come? How well the system will be accepted by its users and how well the system will be incorporated in the ongoing business operations Strategic alignment How well do the project goals align with business objectives? For example: Marketing wants to focus on customers - a CRM project can be interesting! Stakeholder analysis Project champion(s) Organizational management System users

PowerPoint Presentation for Dennis, Wixom, & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved. PROJECT SELECTION

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Project Selection Issues Approval committee works from the system request and the feasibility study Project portfolio – how does the project fit within the entire portfolio of projects? Trade-offs must be made to select projects that will form a balanced project portfolio Some interesting projects may be rejected or deferred because of project portfolio issues.

PowerPoint Presentation for Dennis, Wixom & Roth Systems Analysis and Design, 3rd Edition Copyright 2006 © John Wiley & Sons, Inc. All rights reserved Summary Project initiation involves creating and assessing goals and expectations for a new system Identifying the business value of the new project is a key to success Feasibility study is concerned with insuring that technical, economic, and organizational benefits outweigh costs and risks Project selection involves viewing the project within the context of the entire project portfolio, and selecting those projects that contribute to balance in the portfolio