enables organisation to make the go/no-go decision on projects.
measure of how beneficial or practical an information system will be to an organization.
Results of a feasibility study serve as an input to the business case
Steps
Techniques
Payback Analysis
determining if and when an investment will pay for itself
calculates the period within which the investment will be recovered.
Payback period
Anotações:
the period of time that will lapse
before accrued benefits overtake accrued and continuing costs.
Payback Period = Net Investment / Average Annual Cash Flow
Ignores inflation and rate of interest
Return On Investment
comparing alternative investment opportunities
Ignores inflation and rate of interest
Return on Investment (ROI) = Annual Profit / Investment
Calculates the annual rate of return or profit from the investment
Discounted Cash Flow Techniques
Net Present Value
All future cash flows are adjusted to present value
Net present value = Original Investment +
Current value of all future cash flows
NPV < 0 / NPV > 0
Anotações:
In the case of multiple
investments and returns, the NPV of all
returns should be greater than the NPV of all investments – so
the project is profitable
Annuity and Net Present Value
Internal Rate of Return
Time Value of Money
Interest
Paid to compensate for the depreciation in money value
Simple Interest: Interest is not re-invested
Interest = Principal x Rate of Interest x Time (PxRxT=I)
Compound Interest: Interest is added to the
principal and re-invested
Interest = Principal [(1 + Rate)n – 1]
Future Value of Money
The future value of an
investment after periods (n)
of time is:
Future Value = Principal + Compound Interest
Future Value = Principal x (1 + Rate)n
Cost Benefit Analysis (CBA)
Anotações:
assessing the
appropriateness of an investment, based on the projected flow of costs, and the
benefits expected to result from the investment.
Appropriateness of investment
Anotações:
to be assessed based on the above
projected flow of costs
outlay of cash required
Anotações:
Any outlay of cash required for the initial purchase or maintenance of the investment at any point during the investment’s useful life.
opportunity costs
Identifying Costs
Determine monetary value and timing of project costs
Anotações:
both immediate and on-going
Consider both direct and indirect project costs.
Agree with project sponsor on how to deal with indirect or intangible costs.
Document all assumptions
Anotações:
to
be clarified, or vague areas identified
Identify alternatives
Full Cost of Systems
Cost of the software, initial purchase and updates
Cost of any additional hardware requirements
Cost of ongoing systems
support, internal and external
Cost of initial training and
any refresher training
Costs associated with having to
forego other activities
Anotações:
that
could have either saved money or increased revenues while staff are engaged in
the project
Area that Costs That Will Arise
People
Hardware
Software
Data/Processes
Networking
Documentation
Developing the project cash flow schedule
Determine the evaluation horizon –
usually three to five years
Determine the time
periods (years or
months) to be used
Allocate anticipated costs and
benefits across the schedule
Calculate net cash flow
for each time period
benefits expected to result from the investment.
Any returns
Anotações:
Any returns to the organization resulting from the investment that occur at any
time during the investment’s useful life.
e.g.
Reductions in current costs Increased capacity to generate
new revenue generating output
Identifying the Benefits
Identify the project benefits
Work with the project sponsor
project goals and objectives
Anotações:
Primary sources
Start with expected tangible benefits
Determine monetary value and timing
Document all assumptions
Discuss how intangible benefits are to be presented.
Transform intangibles to tangibles (sometimes).
Limitations
under-estimate actual costs.
over-estimate cost savings.
Most estimates of staff
reductions are never realized
Most cost-benefit analyses
ignore the value of new
opportunities.