System Analysis and Design (SysAD)

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CHAPTER 6
ANALYSIS PROCESS (PART 2)

Specific Objectives

At the end of the topic session, the students are expected to:

Cognitive:

1. Identify the steps in determining hardware and software needs.

2. Describe cost and benefit forecasting.
3. Identify the classifications of costs and benefits.
4. Describe how cost-benefit analysis is performed.
5. Identify the ten main sections of a systems proposal.

Affective:

1. Listen to others with respect.

2. Participate in class discussions actively.

Why is forecasting a useful tool for the systems analyst?

Systems analysts recommend a solution to system users and owners by producing a system proposal.
This deliverable can either be a formal written report or an oral presentation. In addressing information
requirements adequately, the analyst must use systematic methods for acquiring hardware and software,
identify and forecast future costs and benefits, and perform a cost-benefit analysis. All of these methods
are used to prepare systems proposal material and will be discussed in the succeeding sections.

Determine Hardware and Software Needs

The systems analyst follows steps in determining hardware and software needs. This is illustrated in the
figure below.

An inventory on all current computer hardware is

conducted first to find out what is on hand and what
is usable. After that, the current and future system
workloads are estimated. Then, an evaluation of
available hardware and software is undertaken.

An analyst must work with users to determine what

hardware will be needed. Ascertaining hardware
can come only in conjunction with information
requirements determination.

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System Analysis and Design (SysAD)
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Computer Hardware Inventory

Begin with an inventory of computer hardware already available in the organization. Some of the hardware
options require expanding or recycling of current hardware, therefore, it is important to identify what is on
hand.

If an updated computer hardware inventory is not available, the systems analyst must set up one right away
and carry through on it. The following must be identified:

1. The type of equipment: model number, manufacturer.

2. The operation status of the equipment: on order, operating, in storage, in need of repair.
3. The estimated age of the equipment.
4. The projected life of the equipment.
5. The physical location of the equipment.
6. The department or person considered responsible for the equipment.
7. The financial arrangement for the equipment: owned, leased, rented.

Estimate Workloads

The systems analysts formulate numbers that represent both current and projected workloads for the
system so that any hardware acquired will have the ability to handle current and future workloads.

If estimation is achieved properly, then the business does not need to replace hardware solely due to
unforeseen growth in the system use.

Out of necessity, workloads are sampled rather than actually put through several computer systems.

Evaluate Computer Hardware

Evaluation of computer hardware is a shared responsibility of management, users, and systems analysts.
Even though vendors supply the details about their particular offerings, systems analysts must oversee the
evaluation process personally since they have the best interests of the business at heart. Moreover,
systems analysts may have to educate users and management on the general benefits and drawbacks of
hardware before they can competently evaluate it.

The next step that systems analysts do is considering the kinds of equipment available that appear to meet
projected needs. Information from vendors on potential systems and system configurations becomes more
important at this stage and must be reviewed with management and users.

Also, workloads can be simulated and run on different systems, including those already used in the
organization.
Below are the criteria used by systems analysts and users in evaluating performance of different systems
hardware:

the time required for average transactions (including how long it takes to input data and how long it takes
to receive output).
the total volume capacity of the system (how much can be processed at the same time before a problem
arises).
the idle time of the central processing unit.
the size of the memory provided.

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Determine Computer Equipment

There are three main options for determining computer equipment and these are:

Buying. This implies that the business itself will own the equipment. One of the things to consider whether
to buy is the projected life of the system. If the system will be used longer than four to five years, then the
decision is usually made to buy.
Leasing. Leasing equipment from vendor or from third-party leasing company is more practical if the
projected life of the system is less than four years. Also, if considerable change in technology is about to
happen, leasing is a better choice. Leasing also allows business to put its money where it can be working
for the company instead of being tied up in capital equipment. However, leasing is not an economical way
to acquire computer equipment over a long period.
Renting. Renting computer hardware makes it easier to change system hardware. Usually, there are
maintenance and insurance included in rental agreements. Since there are high costs involved and the
company will not own the rented equipment, rental should be considered as short-term move in handling
nonrecurring or limited computer needs or technologically volatile times.

Each option has its advantages and disadvantages. These are listed in the table below.

Advantages Disadvantages
Purchasing - Cheaper than leasing or renting - Initial cost is high
over the long run - Risk of obsolescence
- Ability to change system - Risk of being stuck if
- Provides tax advantages of choice was wrong
accelerated depreciation - Full responsibility
- Full control

Leasing - No capital is tied up - Company doesn’t own the system

- No financing is required when lease expires
- Leases are lower than - Usually a heavy penalty for
rental payments terminating the lease
- Leases are more
expensive than buying

Renting -No capital is tied up - Company doesn’t own the

- No financing is required computer
- Easy to change systems - Cost is very high
- Maintenance and insurance are because vendor assumes the risk
usually included (most expensive option)

Two of the most important factors to consider in deciding which option is best for a particular installation
are whether the business:

1. Can afford to tie up capital in computer equipment; and

2. Desires full control of and responsibility for the computer equipment.

Evaluate Software

Systems analysts and organizations are faced with issues in deciding whether to make, buy, or outsource
software for information systems projects. Similar to the decisions made by analysts when deciding about
renting, buying, or leasing hardware, they have to decide also whether to purchase COTS software, rent
software from an application service provider (ASP), or create custom software for the project.

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COTS stand for commercial off-the-shelf that describes software or hardware products that are ready-made
and available for sale to the public. An example of COTS is Microsoft Office, which is a packaged software
solution for businesses.
Take note that regardless of whether to develop software or purchase a
COTS product for a specific project, it is necessary to complete an information requirements analysis of the
users and systems first. As a systems analyst, you have to make sound judgments regarding developing
software against the purchase of COTS software for new and existing systems.

The table below lists the advantages and disadvantages of creating custom software, purchasing COTS
packages, and outsourcing to an ASP.

Advantages Disadvantages
Creating Custom -Specific response to specialized - May be significantly higher initial cost
Software business needs compared to COTS software of ASP
-Innovation may give firm a competitive - Necessity of hiring or working with a
advantage development team
-In-house staff available to maintain - On-going maintenance
software
- Pride of ownership

- Refined in the commercial world - Programming focused; not

- Increased reliability business focused
Purchasing COTS - Increased functionality - Must live with the existing features
Packages - Often lower initial cost - Limited customization
-Already in use by other firms - Uncertain financial future of vendor
- Help and training comes with software - Less ownership and commitment

Using an ASP - Organizations that do not specialize in - Loss of control of data, systems, IT
information systems employees, and schedules
can focus on what they do best (their - Concern over the financial viability
strategic mission) and long-run stability of
- There is no need to hire, train, or retain the ASP
a large IT staff - Security, confidentiality, and
- There is no expenditure of privacy concerns
employee time on non-essential IT - Loss of potential strategic corporate
tasks advantage regarding
innovativeness of applications

Identifying and Forecasting Costs and Benefits

Costs and benefits of the proposed system should be considered together at all times because these are
interrelated and often interdependent. Cost-benefit analysis is the basis whether to continue with the
proposed system or not, and not on information requirements. In a lot of ways, benefits are measured by
costs.

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Forecasting Cost and Benefits

It is required for a systems analyst to predict certain key variables before submitting the proposal to the
client. He or she relies on the what-if analysis. However, the analyst should understand that he or she
cannot rely on this what-if analysis for everything if the proposal is to be credible, meaningful, and valuable.

There are many forecasting models available that are used by systems analysts. However, there is a main
condition for choosing a model and that is the availability of historical data. If these data are available, the
differentiation between classes and techniques entails whether the forecast is conditional or unconditional.
Conditional means that there is an association amongst variables in the model or that such a causal
relationship exists. Methods common in this group include:

Correlation
Regression
Leading indicators
Econometrics
Input/output models

Unconditional implies that the analyst is not required to find or identify any casual relationships. Analysts
find the methods here as low-cost, easy-to-implement alternatives. Methods included in this group are:
Graphical judgment
Moving averages
Analysis of time series data

On the other hand, if historical data are unavailable, the systems analyst should turn to one of the judgment
methods:

Estimates from the sales force

Surveys to estimate customer demand
Delphi studies (a consensus forecast developed independently by a group of experts through a series
of iterations)
Creating scenarios
Drawing historical analogies

Identifying Costs and Benefits

As discussed in the previous lessons, costs and benefits can be classified as either tangible or intangible.
These classifications should be taken into account when considering systems.

Let’s define tangible and intangible benefits, and tangible and intangible costs.

Tangible benefits. These are advantages measurable in dollars that accrue to the organization through
the use of the information system. Examples of tangible benefits include an increase in the speed of
processing, access to otherwise inaccessible information, access to information on a more timely basis
than was possible before, the advantage of the computer’s superior calculating power, and decreases in
the amount of employee time needed to complete specific tasks.
Intangible benefits. These are the opposite of tangible benefits. Examples of these include improving the
decision-making process, enhancing accuracy, becoming more competitive in customer service,
maintaining a good business image, and increasing job satisfaction for employees by eliminating tedious
tasks.
Tangible costs. These can be accurately projected by the systems analyst and the business’ accounting
personnel. Included here are the cost of equipment such as computers and terminals, the cost of resources,

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the cost of systems analysts’ time, the cost of programmers’ time, and other employees’ salaries.
Intangible costs. These are difficult to estimate and may not be known. Intangible costs include losing a
competitive edge, losing the reputation for being first with an innovation or the leader in a field, declining
company image due to increased customer dissatisfaction, and ineffective decision making due to untimely
or inaccessible information.

The commonly used techniques for comparing the costs and benefits of the proposed system are break-
even analysis, payback, cash-flow analysis, and present value analysis. These techniques provide direct
ways of yielding information to decision makers about the significance of the proposed system.

Three of these techniques will be discussed in the succeeding sections.

Break-Even Analysis

The systems analyst uses the break-even analysis when comparing costs alone. This determines the
break-even capacity of the proposed information system. The point at which the total costs of the current
system and the proposed system cross corresponds to the break-even point, the point where it becomes
profitable for the business to get the new information system. The total costs comprise the costs that recur
during operation of the system plus the development costs that occur only once (one-time costs of installing
a new system), that is, the tangible costs mentioned earlier.

Break-even analysis is useful when a business is growing and volume is a key variable in costs. One
drawback of break-even analysis is that benefits are assumed to remain the same, regardless of which
system is in place.

Also, break-even analysis can determine how long it will take for the benefits of the system to pay back the
costs of developing it.

Cash-Flow Analysis

Cash-flow analysis studies the direction, size, and pattern of cash flow that is related to the proposed
information system. When proposing with the replacement of an old information system to a new one and
when the new information system will not generate any additional cash for the business, only cash outlays
are associated with the project. If this will be the case, the new system will not be justified on the basis of
new revenues generated and must be examined closely for other tangible benefits if it is to be pursued
further.

Present Value Analysis

Present value analysis helps the analyst to introduce to business decision makers the time value of the
investment in the information system as well as the cash flow. This is a means to evaluate all the economic
outlays and revenues of the information system over its economic life, and to compare costs today with
future costs and today’s benefits with future benefits.
Guidelines for Analysis
The use of the methods discussed previously depends on the methods employed and accepted in the
organization itself. The following guidelines help the analysts in deciding which technique to use in
comparing costs and benefits.

1. Use break-even analysis if the project needs to be justified in terms of cost, not benefits, or if benefits
do not substantially improve with the proposed system.
2. Use payback when the improved tangible benefits form a convincing argument for the proposed system.
3. Use cash-flow analysis when the project is expensive relative to the size of the company or when the
business would be significantly affected by a large drain on funds.
4. Use present value analysis when the payback period is long or when the cost of borrowing money is

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high.

Any method chosen, always keep in mind that cost-benefit analysis should be approached systematically,
in a way that can be explained and justified to management, who will eventually decide whether to commit
resources to the systems project.

Systems Proposal

After gathering materials to be included in the systems proposal, the systems analyst needs to section
these in logical and visually effective manner. The analyst need to include ten main functional sections,
usean effective writing style, use figures to supplement writing, and attend to the visual details of the written
proposal.

In the ten main sections of the systems proposal, each part has a particular function and it is arranged in
the following order:

1. Cover letter – addressed to management and the IT task force; list the people who did the study and
summarize the objectives of the study; should be concise and friendly
2. Title page of project – includes the name of the project, the names of the systems analysis team
members, and the date the proposal is submitted
3. Table of contents – can be useful to readers of long proposals; if proposal is less than 10 pages, omit
it
4. Executive summary (including recommendations) – provides who, what, when, where, why, and how of
the proposal; also includes recommendations of the systems analysts and desired management action
5. Outline of systems study with appropriate documentation – provides information about all the methods
used in the study and who or what was studied; discusses any questionnaires, interviews, or observation
used in the systems study
6. Detailed results of the systems study – describes what the systems analyst has found out about the
system through all the methods described in the preceding sections; noted here are the conclusions about
systems problems that have come to the fore through the study; should raise the problems or suggest
opportunities that call forth the alternatives presented in the next section
7. Systems alternatives (three or four possible solutions) – the analyst presents two or three alternative
solutions that directly address the above mentioned problems; the presented alternatives should include
one that recommends keeping the system the same; each alternative should be explored separately and
should describe the costs and benefits; each alternative should indicate what management must do to
implement it
8. Systemsanalysts’recommendations – expressesthe recommended solution; included here are the
reasons supporting the team’s recommendation
9. Proposal summary – a brief statement that mirrors the content of the executive summary; gives the
objectives of the study and the recommended solution; and conclude the proposal on a positive note
10. Appendices (assorted documentation, summary of phases, correspondence, and so on) – can include
any information that the analyst feels may be of interest to specific individuals

After the systems proposal is written, select carefully who should receive the report. Hand the report
personally to the selected people. It is important for the systems analyst to be visible for the acceptance
and eventual success of the system.

It is also important to use tables and graphs in capturing and communicating the basics of the proposed
system. Incorporating figures into systems proposal helps show that the analyst is responsive to the
different ways people absorb information. The figures shown on report supplement written information and
should always be interpreted in words.

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Tables use labelled columns and rows in

presenting statistical or alphabetical data in an
organized manner. Each table is numbered
according to the order in which it appears in the
proposal and the title must be meaningful.

Below are some guidelines for tables:

1. Incorporate tables into the body of the proposal. Do not refer them to the appendices.
2. Try to fit the entire table vertically on a single page, if possible.
3. Number and title the table at the top of the page. Make the title descriptive and relevant.
4. Label each row and column. Use more than one line for a title, if necessary.
5. Use a boxed table if room permits. Vertically ruled columns will enhance the readability.
6. If necessary, use footnotes to explain detailed information contained in the table.

There are different kinds of graphs: line graphs, column charts, bar charts, and pie charts. The first three
graphs compare variables while the pie charts illustrate the composition of 100 percent of an entry.

Line graphs are primarily used to illustrate change over time. The changes in a single variable or up to
five variables can be shown in a single line graph. The guidelines for drawing effective line graphs are as
follows:

1. Include a key.
2. Label the axes.
3. Include a relevant title.
Line graphs are useful in presenting results of payback or break-even analysis to decision makers.
Column charts can show a comparison between two or more variables over time, but these are used
more often to compare different variables at a particular point in time. These are easier to understand
compared with line graphs.

The figure below is an example of a column chart.

Bar charts are used to show one or more variables in

certain classes or categories during a specific time period.

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System Analysis and Design (SysAD)
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These can be organized alphabetically, numerically, geographically, or in progressive order, or these can
be sorted by magnitude. Bar chart is one of the most widely known types of graphs and can make a
comparison in a straightforward manner.

Pie charts are used to show how 100 percent of commodity is divided at a particular point in time. These
are easier to read compared with column charts and bar charts. The benefit of using pie chart is that it
takes up a lot of room on a page.

Here are some guidelines for including graphs in a

proposal:

1. Choose a style of graph that communicates your intended meaning well.

2. Incorporate the graph into the body of the proposal.
3. Give the graph a sequential figure number and a relevant title.
4. Label each axis and any lines, columns, bars, or pieces of the pie on the graph.
5. Include a key to indicate differently colored lines, shaded bars, or crosshatched areas.

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