Feasibility Analysis

Ref: Whitten et all, Systems Analysis and Design Methods 7e. McGraw-Hill Higher Education

Mostafijur Rahman Akhond

Lecture, CSE
BRAC University
 Key Ideas
• Projects are initiated to create business value
using the information technology.
• Business needs:
• Lower cost/Increase revenue
• Improve customer service
• Use latest/emerging technologies
• And many more …

Slide 2
 Key Ideas
• A system request presents
• a brief summary of a business need
• explains how a system that supports the need will create business
value.
• The project sponsor is a key person
• Recognize business need
• Understand business value
• Adoption of new IT
• Want system to succeed
• The approval committee
• reviews proposals from various groups and units
• Approve/decline/suspend projects

Slide 3
Identifying Business Values

Slide 4
 Business value
• Tangible value can be quantified and measured
easily, e.g.
• 2% reduction in operating costs
• 5% increase in sales
• Intangible value – system provides important but
hard-to-measure benefits, e.g.
• improved customer service
• better competitive position

Slide 5
 System Request
• Describes business reasons for building a system – the
business value
• Project sponsor prepares the document
• Approval committee reviews and judges the system
request

Slide 6
 System Request
• Lists key elements of the project
• Project sponsor
• Business need
• Business requirements
• Business value
• Special issues or constraints

Slide 7
Slide 8
Sample System Request

Slide 9
Slide 10
 Your Turn
• If you were building a web-based system for course
enrollment --
• What would be the functionality?
• What would be the expected value?
• What special issues or constraints would you foresee?

Slide 11
Feasibility Analysis

Slide 12
 Key Ideas
• Feasibility analysis is used to aid in the decision of
whether or not to proceed with the IS project.
• Also identifies project risks
• Can be revised throughout SDLC

Slide 13
 Feasibility Analysis

• Detailing Expected Costs and Benefits

• Technical feasibility
• Organizational feasibility
• Economic feasibility

Slide 14
 Technical Feasibility:
Can We Build It?
• Familiarity with application
• Knowledge of business domain
• Familiarity with technology
• Extension of existing firm technologies
• Project size
• Number of people, time, and features
• Compatibility
• Ease of integrating the system with the company’s
existing technology
Slide 15
 Organizational Feasibility
If we build it, will they come?
• Will the users accept the system?
• Will it be incorporated in the organization?
• How to asses?
1. Check Strategic Alignment – fit between project
and business strategy?

Slide 16
 Organizational Feasibility
If we build it, will they come?
2. Perform Stakeholder Analysis
•Stakeholder – any person, group, or organization
that can affect or will be affected by the system
•Stakeholder analysis considers
• Project champion(s)
• Organizational management
• System users

Slide 17
Stakeholders

Slide 18
 Economic Feasibility
Should We Build It?
• Perform cost benefit analysis
• Identify costs and benefits
• Assign values
• Calculate cash flow and ROI
• Development costs
• Annual operational costs
• Annual benefits
• Intangible costs and benefit
Slide 19
Economic Feasibility Steps

Slide 20
Example Cost & Benefits

Slide 21
Assign Values

Slide 22
 Expected Value

Costs Benefits

Tangible * *
* *
* *

Intangible * *
* *
* *

Slide 23
Cash Flow Method for Cost Benefit
Analysis

Slide 24
Cost-Benefit Analysis

Slide 25
 Present Value Calculation
PRESENT VALUE EQUALS

Cash flow amount

Divided by

(1 + interest rate)n
Where “n” equals the number of periods

$100 received in 3 years with a required rate of return

of 10% has a PV of $75.13.

Slide 26
 Net Present Value (NPV)
The NPV is simply the difference between the total
present value of the benefits and the total present
value of the costs.

Slide 27
 Return on Investment (ROI)
• Measures money received in return for money invested
• High ROI is desirable when benefits exceed costs
• Can be determined per year, or for entire project
completion period

Slide 28
Return on Investment Calculation

Slide 29
Return on Investment Calculation

Slide 30
 Break-Even point
• Length of time when returns will match amount
invested
• Greater time -> Greater risks
• Easier to picture graphically – plot cumulative present
value of benefits and costs for each year

Slide 31
Break-Even point

Slide 32
Break-Even Graph

Slide 33
Formulas

Slide 34
 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 ensuring that
technical, economic, and organizational benefits
outweigh costs and risks

Slide 35