SDLC Guide Feasibility Analysis

UNITED STATES MINT

Office of the Chief Information Officer (OCIO) DRAFT June 29, 2003

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SDLC Guide Feasibility Analysis

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Table of Contents

Overview......................................................................................................................................5 Programmatic or other causes and symptoms of the requirement or opportunity..................5 Affected organizations.............................................................................................................5 Types of information needed...................................................................................................5 High-level information processing capabilities.........................................................................5 Ability of the current systems and procedures to address the requirement or opportunity.....5 Timeframes within which the requirement or opportunity must be resolved...........................5 Areas for Feasibility Analysis...................................................................................................7 Cultural Feasibility ...................................................................................................................7 Economic Feasibility ...............................................................................................................7 Financial Feasibility .................................................................................................................7 Managerial Feasibility .............................................................................................................7 Political Feasibility ...................................................................................................................7 Safety Feasibility .....................................................................................................................8 Social Feasibility .....................................................................................................................8 Technical Feasibility ................................................................................................................8 Scope of Feasibility Analysis ...................................................................................................9 Needs Analysis .......................................................................................................................9 Process Work ..........................................................................................................................9 Engineering & Design .............................................................................................................9 Cost Estimate ........................................................................................................................10 Financial Analysis .................................................................................................................10 Project Impacts .....................................................................................................................10 Alternative Descriptions ........................................................................................................10 Evaluation Criteria .................................................................................................................11 Conclusions and Recommendations ....................................................................................11 A. Feasibility Analysis Checklist............................................................................................12 Price ......................................................................................................................................13 Quality ...................................................................................................................................13 Innovations ............................................................................................................................13 Market share .........................................................................................................................13 Growth of market share ........................................................................................................13 Implicit marketing strategy (aggressive, etc.) .......................................................................13 Market position (leader, etc.) ................................................................................................13 Who is profitable ...................................................................................................................13 Trends in profitability .............................................................................................................13 Weaknesses/strengths ..........................................................................................................13 Life cycle stage of industry? .................................................................................................13

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Resulting implications on marketing strategies? ..................................................................13

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Overview
Feasibility is a measure of how beneficial or practical the development of an information system will be to an organization. The feasibility study describes the information management or business requirement or opportunity in clear, technology-independent terms on which all affected organizations can agree. An information management requirement or opportunity can be prompted by such factors as new legislation, changes to regulations, or the growth of a program beyond the support capability of existing systems. The purpose of a feasibility analysis is to: Determine whether feasible solutions to defined concepts exist before full life cycle resources are committed Provide a structured method to focus on problems, identify objectives, evaluate alternatives, and aid in the selection of the best solution Improve confidence that the recommended action is the most viable solution to the problem Assure that projects requiring information systems resources can be done, should be done, and will be done

You assess the requirement or opportunity in terms of technical, economic, and operational feasibility. The study contains decision criteria, comparisons of general solution possibilities, and a proposed program (solution). Before conducting the analysis, you should address the following key decisions. What is the specific requirement? State the requirement and establish the broad objectives of the feasibility analysis. Address characteristics of the requirement such as: o Programmatic or other causes and symptoms of the requirement or opportunity o Affected organizations o Types of information needed o High-level information processing capabilities o Ability of the current systems and procedures to address the requirement or opportunity o Timeframes within which the requirement or opportunity must be resolved What new information needs are associated with the problem? State whether a new information will be needed to support the proposed solution. Describe the scope of the effort entailed in providing the needed information in terms of affected missions and organizations.

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How broad a scope should the proposed solution cover? Provide an overall context or environment within which the potential solution is defined. Ensure that the solution focuses on the major priority areas.

The feasibility study contains decision criteria, comparisons of general solution possibilities, and a proposed solution. Use the Feasibility Analysis Checklist, provided in Appendix A, to ensure that you have performed all steps.

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Areas for Feasibility Analysis

You can determine the feasibility of a project in terms of technical factors, economic factors, or both. To document the feasibility study, you use a report showing all the ramifications of the project, which can include the areas listed below.

Cultural Feasibility
This area deals with the compatibility of the proposed project with the corporate and project culture; for example, projects that are well-accepted at Headquarters might not be as wellaccepted at remote sites.

Economic Feasibility
This area involves the feasibility of the proposed project to generate economic benefits. A costbenefit analysis and a breakeven analysis are important aspects of evaluating the economic feasibility of new projects. You should translate the tangible and intangible aspects of a project into economic terms to provide a consistent basis for evaluation.

Financial Feasibility
Financial feasibility is not the same as economic feasibility. Financial feasibility involves the capability of the project organization to raise the appropriate funds needed to implement the proposed project. Project financing can be a major obstacle in large projects because of the level of capital required.

Managerial Feasibility
This area involves the capability of the infrastructure of a process to achieve and sustain process improvement. Management support, employee involvement, and commitment are key elements required to gauge managerial feasibility.

Political Feasibility
You could refer to a politically feasible project as a "politically correct project." Political considerations often dictate direction for a proposed project. This is particularly true for large projects with national visibility that may have significant government inputs and political implications. For example, political necessity may be a source of support for a project regardless of the project's merits. On the other hand, worthy projects may face insurmountable opposition simply because of political factors. Political feasibility analysis requires an evaluation of the compatibility of project goals with the prevailing goals of the political system.

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Safety Feasibility
Safety feasibility refers to an analysis of whether the project is capable of being implemented and operated safely with minimal adverse effects on the environment. Unfortunately, environmental impact assessment is often not adequately addressed in complex projects. As an example, the North America Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico was temporarily suspended in 1993 because of the legal consideration of the potential environmental impacts of the projects to be undertaken under the agreement.

Social Feasibility
This area addresses the influences that a proposed project may have on the social system in the project environment. The ambient social structure may be such that certain categories of workers may be in short supply or nonexistent. you must assess the effect of the project on the social status of the project participants to ensure compatibility.

Technical Feasibility
Technical feasibility refers to the ability of the process to take advantage of the current state of the technology in pursuing further improvement. You should consider the technical capability of the personnel as well as the capability of the available technology. You also need to analyze technology transfer between geographical areas and cultures to understand productivity loss (or gain) due to differences (see Cultural Feasibility).

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Scope of Feasibility Analysis

In general terms, the sections you should include in a feasibility analysis document are: needs analysis, process work, engineering and design, cost estimate, financial analysis, project impact, alternative descriptions, alternative evaluation, and conclusions and recommendations.

Needs Analysis
This indicates a recognition of a need for the project. The need may affect the organization itself, another organization, the public, or other government entities. You then conduct a preliminary study to confirm and evaluate the need, and develop a proposal of how the need can be satisfied. Pertinent questions that you should ask include: Is the need significant enough to justify the proposed project? Will the need still exist by the time the project is completed? What are the alternate means of satisfying the need? What are the economic, social, environmental, and political impacts of the need?

Process Work
This is the preliminary analysis you perform to determine what will be required to satisfy the need. The preliminary study often involves system models or prototypes. For technologyoriented projects, you can use conceptual drawings and scaled-down models to illustrate the general characteristics of a process. You can also create a simulation of the proposed system to predict the outcome before the actual project starts.

Engineering & Design

This involves a detailed technical study of the proposed project. As appropriate for your project, you should: Get written quotations from suppliers and subcontractors Evaluate technology capabilities Perform product design

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Cost Estimate
This involves estimating project cost to an acceptable level of accuracy. Levels of around -5% to +15% are common at this level of a project plan. Include both the initial and operating costs in the cost estimation. In the cost estimate document, you should also include estimates of capital investment and of recurring and nonrecurring costs. You can also perform a sensitivity analysis on the estimated cost values to see how sensitive the project plan is to the estimated cost values.

Financial Analysis
This involves analyzing the cash flow profile of the project. The analysis should consider rates of return, inflation, sources of capital, payback periods, breakeven point, residual values, and sensitivity. This is a critical analysis since it determines whether and when funds will be available to the project. The project cash flow profile helps to support the economic and financial feasibility of the project.

Project Impacts
This portion of the feasibility study provides an assessment of the impact of the proposed project. Environmental, social, cultural, political, and economic impacts may be some of the factors that will determine how the public perceives a project. You should also assess the value-added potential of the project.

Alternative Descriptions
This part of the document states the required and desirable features, and provides a concise narrative of the effects of implementing this alternative. It provides: A description for each alternative proposed to handle the defined problem. It should describe the resources required, associated risk, system architecture, technology used, and the manual process flow for each alternative. A high-level data flow diagram and logical data model, if possible, from current physical processes and data for the proposed system alternative.

The section should state at least two alternatives for each feasibility studyincluding the alternative of doing nothing, if appropriateand predict the anticipated benefits of each alternative and the likely effects of not taking action on the alternative. This part of the document should also state the benefits in terms of technical, operational, and economic feasibility.

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Evaluation Criteria
This section states the criteria by which the alternatives will be evaluated. The criteria should make a distinction among characteristics that must be present in the system for it to be acceptable.

Conclusions and Recommendations

The feasibility analysis document should end with the overall outcome of the project analysis. In this section of the feasibility report, you should provide a systematic comparison of the alternatives, and document potential problems resulting from the implementation of each. You should also include recommendations on what action should be taken, and may indicate an endorsement or disapproval of the project

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A. Feasibility Analysis Checklist

Feasibility Analysis Checklist The Business The Product What is the business going to sell? To whom it will be sold? What will product or service be used for? Why will prospects in target market buy product? What is the anticipated price? Ready for sale? Debugging a prototype? Paper dream? What product weaknesses cause a disadvantage in the market place? How to compensate for weaknesses? How to overcome any technological obsolescence?

Development status

Strengths and weaknesses First Checkpoint The Market: A Preliminary Evaluation

Are the type and level of critical resources available? Total market size and trends Identify past, present, and best estimates for sales in terms of 'dollars' and 'units' for target market segment(s). If data is sketchy, contradictory, and hard to interpret, admit it! Identify assumptions being made about the marketplace. Include competing ways potential customers can fulfill the specific needs being addressed by the business' product. Specifically identify direct competition for target

Assessment of competition

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market segments(s). Provide data about all reasonable competitors: o Price o Quality o Innovations o Market share o Growth of market share o Implicit marketing strategy (aggressive, etc.) o Market position (leader, etc.) o Who is profitable o Trends in profitability o Weaknesses/strengths How to leverage competitor weaknesses? Overcome strengths? Trends in industry profitability? o Life cycle stage of industry? o Resulting implications on marketing strategies? What marketing mix variables are critical for decisions to purchase? (product, price, promotion, place). First estimate of venture's market share and target sales for the first, second, and third operating year. Are estimates realistic, but still challenging and worthy of anticipated resource allocation? Outline product delivery system. How to sell? How to distribute? Service and warranty issues. Promotional mix

Market share

Market tactics

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Second Checkpoint

It should be clear that: The potential market is large. A small share of the market will produce significant sales. The proposed product can be priced to sell at a profit in the marketplace. Can venture make product to specifications and deliver it on-time within competitive target cost levels? Does venture have sufficient knowledge about its suppliers and the local labor market to ensure that it will not face major operational problems? Will materials be accessible in sufficient quantity and quality? Is material acquisition probable within budgeted prices and time constraints for venture? Is special skills training necessary for successful operations? Will you have to rely on any unproven, custom-made production equipment? Are the solutions to production and operation issues within grasp? Are there any serious doubts to the viability of a solution? Are no solutions obvious? List know-how and skills needed for the new business. List skills available. Show evidence of demonstrated skills and availability and commitment to the project. Identify gaps and indicate how to fill. Is the venture being built upon strengths and experience?

Production and Operations

Third Checkpoint Entrepreneurs Fourth Checkpoint

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Financing Required Fifth Checkpoint

Is the critical experience required by the venture now on-line?

Indicate the magnitude of financing required. Is the level of financing within the range acceptable by the various resource allocators? Are the financial requirements reasonable with respect to the ventures potential and risks? Identify the most important risks to the success of the venture. Evaluate the risks on both the probability of occurrence and its magnitude of negative results. Indicate a contingency solution for overcoming each major risk. All reasonable risks should be apparent. All risks and problems should not be insurmountable. All risks should be reasonable relative to the potential opportunity and rewards.

Major Risks and Problems

Final Checkpoint

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