Feasibility and Cost/Benefit Analysis

Cost considerations

Cost classifications

–Tangible / Intangible

–Direct / Indirect

–Fixed / Variable

–Developmental / Operational

IS Chargeout Methods

IS incurs costs that are directly attributed to developing the system– salaries– hardware– software– supplies

Also indirect costs

IS Chargeback Methods

Chargeback method is technique used to bill end users for indirect costs of running information systems department– No charge (cost center vs. profit center)– Fixed charge– Variable – based on resource usage– Variable – based on volume

No Charge Method

treat IS costs as necessary cost of doing business

IS is a COST CENTER

Fixed Charge Method

IS costs are divided among all other departments, each assessed a fixed monthly charge

IS is now a PROFIT CENTER

Variable charge Method

Based on resource usage– connect time– CPU time

Based on volumes– Number of transactions– number of files– number of records

Benefit Considerations

Positive Benefits– increase revenues, improve services.

… Cost Avoidance Benefits

– reduced clerical costs, reduced overtime, …

Must consider both

Cost - Benefit Analysis

Process of comparing anticipated costs of IS to anticipated benefits

Performed throughout SDLC to determine economic feasibility

Payback Analysis

Determine the initial development cost of the system

Estimate annual benefits Determine annual operating costs Find the payback period by comparing total

development and operating costs to the accumulated value of the benefits produced by the system

Payback Analysis Plot costs of IS year by year over entire

potential life– costs high at beginning (developing)– costs decrease at beginning of system

operation, stay relatively constant for a while

– costs eventually start to increase -- possibly rapidly (more and more maintenance required)

Payback Analysis

Plot benefits provided by IS against time–No benefit until system is

operational–Benefits increase rapidly–Benefits tend to level off

Payback Analysis

Payback period -- amount of time that passes before accumulated benefits equal accumulated costs of developing and operating system

NOTE -- not the point where the cost and benefit curves cross

Payback Analysis - ** Places emphasis on early costs and

benefits, ignoring costs and benefits after payback period

Rarely used to compare projects because later benefits are ignored

Many companies establish minimum payback periods for continued consideration (5 years)

Return on Investment Analysis

ROI = (total benefits - total costs)

total costs

Return on Investment Analysis

Many organizations require minimum ROI (15%)

You can used ROI for ranking projects

However, only an average rate and ignores time value of money

Present Value Analysis

PV of a future dollar is the amount of money that, when invested today at some specified interest rate, would grow to exactly one dollar at that point in the future

Present Value Analysis

PV = 1 / ( 1 + I) n

Rule of 72

Net Present Value

Present Value Analysis

Any project with positive net present value is economically feasible

PROJECT MANAGEMENT

Ongoing process of directing and coordinating all the steps in development of IS

Effective project management necessary throughout SDLC

Project Management -- Overview

GOAL -- produce IS that is acceptable to end users, in time, and in budget($)

Project Manager– manage project (daily activities)

Project coordinator– handles administrative and procedural

responsibilities

Management Functions

Planning Organizing Leading Controlling

Project Planning

Takes place at beginning and end of all SDLC phases

ACTIVITY (Task)

any project-related work requiring use of project resources (personnel, time or money) or any external effort that impacts the project

smallest unit of work over which project manager desires control

ACTIVITIES should be small and manageable

EVENT

Project milestone representing beginning or end of an activity

Concrete and recognizable (to verify that an activity is complete)

PROJECT MANAGER Defines project activities and events estimates time and cost to complete each

activity schedules/assigns activities to specific team

members coordinates activities monitors events evaluates/reports on progress

PROJECT ESTIMATING

REALISTIC TIME ESTIMATES VERY DIFFICULT

MUST CONSIDER– Size of project– IT Resources– Prior experience– Constraints

TIME ESTIMATES

Person days Time and people are NOT NOT

interchangeable Quantitative Method Experience Method Constraint Method

General Productivity Programmer does not spend 8 hours / day on

project assignments

– meetings

– training

– down time

– vacations

– maintenance

– other projects….

PROJECT SCHEDULING

(Identify activities) Determine order in which activities

will be performed Set start/end times for activities assign specific tasks to team

members

Scheduling Tools

Gantt Chart PERT/CPM

Gantt chart

First used in 1917 to control production of war materials

Horizontal bar chart that graphically illustrates a schedule

Gantt chart

Time represented by horizontal axis Activities listed vertically (in order by

start dates) Length of bar indicates duration of

activity Current date indicated with dotted line

or shaded bars

Gantt chart

Useful for tracking and reporting progress Picture is easily understood Not great for project control Do not show project dependencies; can

not determine impact on entire project caused by an activity that is behind schedule

PERT/CPM

Program Evaluation Review Technique

Critical Path Method Developed by Navy Special

Projects Office in 1950’s to control submarine missile program

PERT/CPM Project activities and events are graphically

presented as network of vectors and nodes Activity -- Vector (line with single

arrowhead) connects one node to another Event -- Node (usually circles) Vector similar to bar on Gantt, ---- length of

vector does not indicate length of activity

PERT/CPM

Activities can be scheduled serially or parallel

Dummy Activity (dashed vector)–indicates dependency, no time is

required Activity duration

PERT/CPM

Earliest completion time (ECT)

–calculated from beginning to end Latest completion time (LCT)

–calculated from end to beginning (after entire project has identified ECT)

PERT/CPM

Slack time

– amount of time by which an event can be late without delaying the project

– difference between LCT and ECT Critical Path

– Complete path through a PERT/CPM network where ECT equals LCT

Gantt Chart vs. PERT/CPM PERT shows dependencies

– much more helpful for project scheduling

– Useful for monitoring and controlling projects

– Critical path identified

– Difficult to construct Gantt

– Easier to use for reporting purposes

Gantt vs. PERT/CPM

Used in combination with each other neither address resource leveling

–process that manager used to ensure that no team members are either underutilized or overscheduled

Project monitoring and control

Traditional management functions of directing and controlling

structured walk through Peer review

Project Management Project reporting

– Project status meetings– Project status reports

Project management software– allows manager to iterate between

schedules, estimates and resource assignments

Change Control – Project coordinator responsibility

Software Change Control

Process of managing and controlling requested changes to system requirements document after requirements have be accepted and frozen

Software Change Control Complete change request form Project coordinator makes initial

determination If you are to proceed, analyze the impact of

requested changed (project manager or analyst)

Determine disposition of requested change

Why Projects fail???

When does programmer inform project manager that he is behind schedule?

When does project manager inform corporate management that the project is behind schedule?