Feasibility Analysis

Slide 1
 Key Ideas

• Projects initiated to create business value

from using information technology.
• Business needs:
●Lower cost/Increase revenue
●Improve customer service
●Use latest/emerging technologies
●…

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
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IDENTIFYING
BUSINESS
VALUE

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

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Slide 9
Umm… Spotify?

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10
Slide 11
 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?

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FEASIBILITY
ANALYSIS

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 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 14
Feasibility Analysis

• Detailing Expected Costs and Benefits

●Technical feasibility
●Economic feasibility
●Organizational feasibility

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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
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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
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Economic Feasibility Steps

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Example Cost & Benefits

Slide 19
Assign Values

Slide 20
Cash Flow Method for Cost
Benefit Analysis

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Cost-Benefit Analysis

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 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.

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 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.

30000 500000 252100

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 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

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Return on Investment Calculation

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Return on Investment Calculation

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 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 28
Break-Even point

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Break-Even Graph

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Formulas

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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?

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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

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Stakeholders

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 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

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