1. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 1 The Feasibility Study  What is a feasibility study?  What to study and conclude?  Types of feasibility  Operational  Technical  Schedule  Economic  Quantifying benefits and costs  Payback analysis  Net Present Value Analysis  Return on Investment Analysis  Comparing alternatives

2. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 2 Why a feasibility study?  Objectives of a feasibility study:  To find out if an information system project can be done: ...is it possible? ...is it justified?  To suggest possible alternative solutions.  To provide management with enough information to know:  Whether the project can be done  Whether the final product will benefit its intended users  What the alternatives are (so that a selection can be made in subsequent phases)  Whether there is a preferred alternative  After a feasibility study, management makes a “go/no- go” decision.  A feasibility study is a management-oriented activity

3. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 3 Content of feasibility study  Things to be studied in the feasibility study:  The present organizational system  users, policies, functions, objectives,...  Problems with the present system  inconsistencies, inadequacies in functionality, performance,…  Objectives and other requirements for the new system  Which problems need to be solved?  What needs to change?  Constraints  including nonfunctional requirements on the system (preliminary pass)  Possible alternatives  “Sticking with the current system” should always be studied as one alternative  Different business processes for solving the problems  Different levels/types of computerization for the solutions  Advantages and disadvantages of the alternatives  Things to conclude:  Feasibility of the project  The preferred alternative.

4. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 4 Types of feasibility  Operational feasibility  Explores the urgency of the problem and the acceptability of any solution:  If the system is developed, will it be used?  Includes people-oriented and social issues  internal issues:  manpower problems  labour objections  manager resistance  organizational conflicts and policies  external issues:  social acceptability  legal aspects and government regulations.  Technical feasibility  Is the project feasibility within the limits of current technology?  Does the technology exist at all?  Is it available within given resource constraints?  i.e. budget, schedule,…  Schedule feasibility  Is it possible to build a solution in time to be useful:  What constraints are there on the project schedule?  Can these constraints be reasonably met?  Economic feasibility (Cost/Benefits Analysis)  Is the project possible, given resource constraints?  What benefits will result from the system?  Look for both tangible and intangible benefits  Quantify the benefits (e.g. cost savings)  What are the development and operational costs?  Are the benefits that will accrue worth the costs?

5. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 5 Exploring Operational Feasibility  The “PIECES” framework  Useful for identifying operational problems to be solved, and their urgency  Performance  Does current system provide adequate throughput and response time?  Information  Does current system provide end users and managers with timely, pertinent, accurate and usefully formatted information?  Economy  Does current system provide cost-effective information services to the business? Could there be a reduction in costs and/or an increase in benefits?  Control  Does current system offer effective controls to protect against fraud and to guarantee accuracy and security of data and information?  Efficiency  Does current system make maximum use of available resources, including people, time, flow of forms,...?  Services  Does current system provide reliable service? Is it flexible and expandable?

6. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 6 Checking for Operational Feasibility  How do end-users and managers feel about…  …the problem you identified?  …the alternative solutions you are exploring?  You must evaluate:  Not just whether a system can work…  … but also whether a system will work.  A workable solution might fail because of end user or management resistance:  Does management support the project?  How do the end users feel about their role in the new system?  Which users or managers may resist (or not use) the system?  People tend to resist change.  Can this problem be overcome? If so, how?  How will the working environment of the end users change?  Can or will end users and management adapt to the change?

7. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 7 Technical Feasibility  Is the proposed technology or solution practical?  Do we currently possess the necessary technology?  Do we possess the necessary technical expertise, and is the schedule reasonable?  Is relevant technology mature enough to be easily applied to our problem?  What kinds of technology will we need?  Some organizations like to use state-of-the-art technology  …but most prefer to use mature and proven technology.  A mature technology has a larger customer base for obtaining advice concerning problems and improvements.  Is the required technology available in the information systems shop (in house)?  If the technology is available:  …does it have the capacity to handle the solution?  If the technology is not available:  …can it be acquired?

8. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 8 Schedule Feasibility  How long will it take to get the technical expertise?  We may have the technology, but that doesn't mean we have the skills required to properly apply that technology.  True, all information systems professionals can learn new technologies.  However, that learning curve will impact the schedule.  Assess the schedule risk:  Given our technical expertise, are the project deadlines reasonable?  If there are specific deadlines, are they mandatory or desirable?  If the deadlines are desirable rather than mandatory, the analyst can propose alternative schedules.  What are the real constraints on project deadlines?  If the project overruns, what are the consequences?  Deliver a properly functioning information system two months late…  …or deliver an error-prone, useless information system on time?  Missed schedules are bad, but inadequate systems are worse!

9. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 9 Economic Feasibility  Can the bottom line be quantified yet?  Very early in the project, economic feasibility analysis is just a judgement of whether possible benefits of solving the problem are worthwhile.  As soon as specific requirements and solutions have been identified, the costs and benefits of each alternative can be assessed  Cost-benefit analysis  Purpose - answer questions such as:  Is the project justified (because benefits outweigh costs)?  Can the project be done, within given cost constraints?  What is the minimal cost to attain a certain system?  What is the preferred alternative, among candidate solutions?  Examples of things to consider:  Hardware/software selection  How to convince management to develop the new system  Selection among alternative financing arrangements (rent/lease/purchase)  Difficulties  discovering and assessing benefits and costs…  …they can both be intangible, hidden and/or hard to estimate  ranking multi-criteria alternatives

10. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 10 Benefits and Costs  Examples of benefits  cost reductions  error reductions  increased throughput  increased flexibility of operation  improved operation  better (e.g., more accurate) and more timely information.  Benefits may be:  Monetary:  if $-values can be calculated  Tangible (Quantified):  if benefits can be quantified, but $-values can't be calculated  Intangible  if neither of the above applies  How to identify benefits?  By organizational level (operational, lower/middle/higher management)  By department (production, purchasing, sales,…) 2 Types of Cost  Development costs (OTO)  Development and purchasing costs:  who builds the system (internally or contracted out)?  software used (buy or build)?  hardware (what to buy, buy/lease)?  facilities (site, communications, power,...)  Installation and conversion costs:  installing the system,  training personnel,  file conversion,....  Operational costs (on-going)  System Maintenance:  hardware (repairs, lease, supplies,...),  software (licences and contracts),  facilities  Personnel:  For operation (data entry, backups,…)  For support (user support, hardware and software maintenance, supplies,…)

11. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 11 Example: costs for small Client-Server project

12. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 12 3 ways of analyzing Costs vs. Benefits  Payback Analysis  how long will it take (usually, in years) to pay back the project, and accrued costs: Total costs (initial + incremental) - Yearly return (or savings)  Net Present Value Analysis  determines the profitability of the new project in terms of today's dollar values  if you invest in the proposed project, after n years you will have $XXX profit/loss on your investment  Return on Investment Analysis:  compares the lifetime profitability of alternative solutions. Lifetime benefits - Lifetime costs Lifetime costs

13. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 13 Discount Rates & Present Value  A dollar today is worth more than a dollar tomorrow…  Your analysis should be normalized to refer to “current year” dollar values.  The discount rate:  measures the opportunity cost of investing money in other projects, rather than the information system development one  This number is company- and industry-specific.  Present Value:  Represents the real (“current year”) dollar value for costs or benefits n years into the future, for given discount rate i 1 Present_Value(n) =(1 + i) n  For example, if the discount rate is 12%, then  Present_Value(1) = 1/(1 + 0.12) 1 = 0.893  Present_Value(2) = 1/(1 + 0.12) 2 = 0.797 ...

14. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 14 Payback Analysis  We need to compute Total costs (initial + incremental) - Yearly return (or savings)  …but with present dollar values.  Assuming the same figure as for year 4, the net present value of this investment in the project will be:  after 5 years, $13,652  after 6 years, $36,168

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16. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 16 Using Payback Analysis  Can compute the break-even point:  when does lifetime benefits overtake lifetime costs?  Determine the fraction of a year when payback actually occurs: |beginningYear amount| / endYear amount + |beginningYear amount|)  For our last example, 51,611 / (70,501 + 51,611) = 0.42  Therefore, the payback period is 3.42 years  Can compute the Net Present Value  Discount all costs and benefits (using the discount rate)  Estimate the expected life of the system (in years)  Subtract the sum of the discounted costs from the sum of the discounted benefits to determine the net present value.  If it is positive, the investment is good.  If negative, the investment is bad.  When comparing alternatives, the one with the highest positive net present value is the best investment.

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18. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 18 Return on Investment (ROI) analysis  Compares the lifetime profitability of alternative solutions or projects.  The ROI measures the ratio of the amount the business gets back from an investment and the amount invested.  The ROI is calculated as follows: ROI=Estimated lifetime benefits - Estimated lifetime costs Estimated lifetime costs or: ROI=Net Present value / Estimated lifetime costs  For our example  ROI = (795,440-488,692)/ 488,692= 62.76%,  or ROI = 306,748 / 488,692 = 62.76%  The solution offering the highest ROI is the best alternative

19. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 19 Comparing Alternatives  How do we compare alternatives?  When there are multiple selection criteria?  When none of the alternatives is superior across the board?  Use a Feasibility Analysis Matrix!  The columns correspond to the candidate solutions;  The rows correspond to the feasibility criteria;  The cells contain the feasibility assessment notes for each candidate;  Each row can be assigned a rank or score for each criterion  e.g., for operational feasibility, candidates can be ranked 1, 2, 3, etc.  A final ranking or score is recorded in the last row.  Other evaluation criteria to include in the matrix  quality of output  ease of use  vendor support  cost of maintenance  load on system  …

20. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 20 Example matrix

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23. Department of Computer Science © Castro, Mylopoulos and Easterbrook 2002 23 Feasibility Study Contents 1. Purpose and scope of the study  objectives, who commissioned it, who did it, sources of information, process used for the study, how long did it take,… 2. Description of present situation 1. organizational setting, current system(s). 2. Related factors and constraints. 3. Problems and requirements. 4. Objectives of the new system. 5. Possible alternatives 1. including, possibly, the present situation. 6. Criteria for comparison 1. definition of the criteria 7. Analysis of alternatives 1. description of each alternative 2. evaluation with respect to criteria 3. cost/benefit analysis and special implications. 8. Recommendations 1. what is recommended and implications  what to do next; 1. (optionally, recommend an interim solution and a permanent solution) 9. Appendices, to include any supporting material.