1. Slide 1 Software Construction Software Construction Lecture 3

2. Slide 2 PROJECT INITIATION Objectives of this Lecture Understand the importance of linking the information systems to business needs Be able to create a system request Understand how to access technical, economic, and organizational feasibility Be able to perform a feasibility analysis

3. Slide 3 PROJECT INITIATION Introduction

4. Slide 4 Key Ideas Projects are identified when someone sees an opportunity to create business value from using information technology Technology is secondary to a solid understanding of business and its needs Feasibility analysis is used to aid in the decision of whether or not to proceed with the IS project.

5. Slide 5 Key Ideas The project sponsor is a key person proposing development or adoption of the new information technology. The approval committee reviews proposals from various groups and units in the organization and decides which to commit to developing. Projects are selected by weighting risks and return, and by making trade-offs at the organizational level

6. Slide 6 Project Identification

7. Slide 7 Project Identification A project identification is to identify the opportunity to apply IT to meet business need When a project is identified, a System Request needs to be produced System request is a document that describes the business reasons for building a system and its expected value

8. Slide 8 System Request System request lists the key elements of an identified project Project name Project sponsor: The person who initiates the project and who serves as the primary point of contact for the project on the business side Business need: The business-related reason for initiating the system Business requirements: The business capabilities that the system will provide Business value: The benefits that the system will create for the organization Special issues or constraints

9. Slide 9 CD Selections is an case study used to illustrate concepts presented in the textbook Background: CD Selections is a chain of fifty music stores with annual sales of $50 millions. The marketing department of the company has identified the business opportunity to use Web system to improve the sales and customer service. A system request is needed to be produced for the approval Application Example:

10. Slide 10 Project name: Internet Order project Project sponsor: Vice President of Marketing Business need: This project has been initiated to reach new internet customers and to better serve existing customers using internet sales support Business requirements: Search through the CD Selections’ inventory of products Identify the retail stores that have the product in stock Put a product on hold at a retail store and schedule a time to pick up product Place an order for products not currently in stock Receive confirmation that an order can be placed and when it will be in stock Application Example:

11. Slide 11 Business value: Increase sales from new customers: $750,000 Reducing lost sales due to out-of-stock items: $1,875,000 Reduce customer service calls yearly: $50,000 Improve customer satisfaction and increase brand recognition due to the internet presence Special issues or constraints This is viewed as a strategic system and is served as a proof of concept for future internet endeavors (For example, sell products directly over the internet in future) The system should be in place for the holiday shopping season next year Application Example:

12. Slide 12 FEASIBILITY ANALYSIS

13. Slide 13 Feasibility Analysis Detailing Expected Costs and Benefits Technical feasibility Economic feasibility Organizational feasibility

14. Slide 14 Technical Feasibility: Can We Build It? Technical feasibility analysis is to answer what extend a new system can be successfully designed, developed and installed The risk factors needed to be considered: Familiarity with application  Knowledge of business domain Familiarity with technology  Extension of existing firm technologies Project size  Number of people, time, and features Compatibility  Be able to integrate with the existing systems

15. Slide 15 Technical feasibility: Familiarity with application CD selections’ risk regarding familiar with internet order application is high Market dept has little experience with internet marketing and sales IT dept is familiar with the existing order system but has no working experience with web-enabled order systems Application Example:

16. Slide 16 Technical feasibility: Familiarity with technology CD selections’ risk regarding familiar with technology is medium IT dept has relied on external consultants and service provider for the existing web environment IT dept has gradually learned about Web system by maintaining the current web site Tools and software for Web development are available in market but IT dept has little development experience Consultants are available to provide help Application Example:

17. Slide 17 Technical feasibility: Project size CD selections’ risk regarding project size is medium The project team likely will include less than 10 people Business user involvement will be required The project needs to be completed before the next Christmas holiday season at latest, and should be much shorter Application Example:

18. Slide 18 Technical feasibility: Compatibility Compatibility with CD selections’ existing technical infrastructure should be good The current Order system is a client-server system built using open standards. An interface with the Web should be possible Retail stores already place and maintain orders electronically An internet infrastructure already in place at retail stores and at the headquarters The ISP should be able to scale their services to include a new order system Application Example:

19. Slide 19 Economic Feasibility Should We Build It? Economic feasibility analysis is also called cost-benefit analysis by taking into account Development costs Annual operational costs Annual benefits (cost saving and revenue) Intangible costs and benefit

20. Slide 20 Perform cost-benefit analysis Steps to perform cost-benefit analysis 1.Identify costs and benefits 2.Assign values to costs and benefits 3.Determine cash flow 4.Determine net present value 5.Determine return on investment 6.Calculate break-event point 7.Graph break-event point

21. Slide 21 Step 1. Identify costs and benefits Example – CD Selections Development cost: Development team salaries, consultant fees, software, hardware,…… Operational cost: Operation team salaries, software license fees,…… Tangible Benefits: Increase sales from new customers and existing customers, Reduction in customer complaint calls Intangibles: Improve customer satisfaction, increase brand recognition, …… Perform cost-benefit analysis

22. Slide 22 Step 2. Assign values to costs and benefits Example – CD Selections Development cost (year 1):  Labor: Analysis and design 42,000  Labor: Implementation120,000  Consultant fees50,000  ……  Total:254,000 Perform cost-benefit analysis

23. Slide 23 Step 2. Assign values to costs and benefits Example (continuous)– CD Selections Operational cost (year1, 2 and 3):  Labor: Webmaster 85,000  Labor: Network Technician60,000  Software licenses 3,000  ……  Total:446,000 Perform cost-benefit analysis

24. Slide 24 Step 2. Assign values to costs and benefits Example (continuous)– CD Selections Tangible Benefits (year 2 and 3):  Increase sales from new customer 750,000  Increase sales from existing customers 1,875,000  Reduction in customer complaint calls 50,000  Total:2,675,000 Perform cost-benefit analysis

25. Slide 25 Perform cost-benefit analysis Step 3. Determine cash flow

26. Slide 26 Perform cost-benefit analysis (1 + interest rate) n Some amount of money NET PRESENT VALUE EQUALS Divided by where “n” is the number of periods Example-CD Selections: 2003 =Present year Interest rate=6% 2003 benefit=0 2004=$2675000 PV of 2004=$2521444 2005=$2753750 PV of 2005=$2520071 PV of Total Benefit =5041515 PV of Total Cost =1531638 Total NPV= PV of total benefit – PV of total cost = 3509877 Step 4. Determine net present value (NPV)

27. Slide 27 Total (benefits - costs) Perform cost-benefit analysis Total costs RETURN ON INVESTMENT EQUALS Divided by Example-CD Selections: Total NPV = PV of benefit (5041515) – PV of cost (1531638) = 3509877 Return on Investment = Total NPV/Total Cost = 3509877/1531638 =229.16% Step 5. Determine return on investment (ROI)

28. Slide 28 Perform cost-benefit analysis Step 6 & 7. Calculate break-event point and graph break-event point Break-event point: The point in time at which the costs of the project equal the value it has delivered Example-CD Selections:

29. Slide 29 Organizational Feasibility If we build it, will they come? Organizational Feasibility: to assess how well a system ultimately will be accepted by its users and incorporated into the ongoing operation of the organization Approaches for Organizational Feasibility: Strategic alignment analysis Stakeholder analysis

30. Slide 30 Perform Organizational Feasibility Analysis Strategic alignment analysis: To assess the fitness between the project and business strategies The greater the alignment, the less risk the project from an organizational feasibility perspective Example-CD Selections: From an organization perspective, the project has slow risk The objective of the system (increase the sales) is aligned well with the senior management’s goal of increasing sales The move to the Internet also aligns with Marketing’s goal to become more understanding in internet marketing and sales.

31. Slide 31 Perform Organizational Feasibility Analysis Stakeholder analysis Stakeholder: person, group, or organization that can affect (or will be affected by) a new system Stakeholder analysis assesses how well the stakeholders are willing to support the project and accept and use the system Most important stakeholders for organizational feasibility are  Project champion(s)  Organizational management  System users

32. Slide 32 Perform Organizational Feasibility Analysis Example-CD Selections: Stakeholder analysis The project has a champion, the Vice President of Marketing, who is well positioned to support this project and to educate the rest of senior managers when needed. To date, most senior managers are aware of and support the initiative The users of the system, internet customers, are expected to appreciate the benefits of the Web system Management in the retail stores should be willing to accept the system, giving the possibility of increasing sales at the store level

33. Slide 33 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 The system request describes an overview of the proposed system. The feasibility study is concerned with insuring that technical, economic, and organizational benefits outweigh costs and risks