systems development dr. yan xiong college of business csu sacramento 10/12/03
TRANSCRIPT
Systems DevelopmentSystems Development
Dr. Yan XiongDr. Yan XiongCollege of BusinessCollege of BusinessCSU SacramentoCSU Sacramento
10/12/0310/12/03
AgendaAgenda• Systems Development Life Systems Development Life
Cycle (SDLC)Cycle (SDLC)• Systems Development PlanningSystems Development Planning• Feasibility AnalysisFeasibility Analysis
Front -end Systems PlanningFront -end Systems Planning
Systems Development Systems Development Life Cycle (SDLC) Life Cycle (SDLC) Systems Development Life Cycle (SDLC) phasesSystems Development Life Cycle (SDLC) phases
• Systems analysisSystems analysis• Conceptual designConceptual design• Physical designPhysical design• Implementation and conversionImplementation and conversion• Operations and maintenanceOperations and maintenance
SDLCSDLC Each phase broken down Each phase broken down
into several steps or into several steps or taskstasks
Each step has:Each step has: Start dateStart date End dateEnd date Product (deliverable)Product (deliverable)
Steps may be repeated Steps may be repeated (Waterfall Model)(Waterfall Model)
Systems Development Systems Development Life Cycle Life Cycle
Systems Analysis Do initial investigation Do system survey
Do feasibility study Determine information needs
and system requirements Deliver systems requirements
Feasibility analysis and decision points
Feasibility AnalysisFeasibility Analysis Traditionally, done once at Traditionally, done once at
project beginning, then forgottenproject beginning, then forgotten Should be redone after each Should be redone after each
SDLC stageSDLC stage SDLC costs increase exponentially SDLC costs increase exponentially
through each succeeding phasethrough each succeeding phase Project uncertainty (# unknowns) Project uncertainty (# unknowns)
decreases with each SDLC stagedecreases with each SDLC stage
SDLC Costs and UnknownsSDLC Costs and Unknowns
TIME (SDLC Phases)TIME (SDLC Phases)
Mag
nitu
deM
agni
tude
Project CostsProject Costs
ProjectUnknowns ProjectUnknowns
Feasibility AnalysisFeasibility Analysis Forget about sunk costs!Forget about sunk costs!
they are the pastthey are the past Alaska state personnel systemAlaska state personnel system
So, at end of each SDLC phaseSo, at end of each SDLC phase conduct new feasibility analysisconduct new feasibility analysis now fewer unknowns than beforenow fewer unknowns than before make decision of whether or not to make decision of whether or not to
proceed with SDLCproceed with SDLC
Systems Development Systems Development Life Cycle Life Cycle
Feasibility analysis and decision points
Conceptual Design Identify and evaluate design alternatives
Develop design specifications Deliver conceptual design
requirements
Systems Development Systems Development Life Cycle Life Cycle
Feasibility analysis and decision points
Physical Design Design output Design data base Design input Develop programs
Develop procedures Design controls
Deliver developed system
Systems Development Systems Development Life Cycle Life Cycle
Feasibility analysis and decision points
Implementation / Conversion Develop plan
Install hardware and software Train personnel, test the system Complete documentation Convert from old to new system
Fine-tune and review Deliver operational system
Systems Development Systems Development Life Cycle Life Cycle
Operation and Maintenance Operate system
Modify system Do ongoing maintenance Deliver improved system
SystemsAnalysis
ParticipantsParticipants• ManagementManagement• AccountantsAccountants• IT Steering CommitteeIT Steering Committee• Project development teamProject development team
• systems analysts and programmerssystems analysts and programmers• External playersExternal players
• customerscustomers• vendorsvendors
Accountants’ RolesAccountants’ Roles• Determine own information needsDetermine own information needs• Members of project development teamMembers of project development team• Play active role in designing system controlsPlay active role in designing system controls• Help perform feasibility (ROI) analysesHelp perform feasibility (ROI) analyses
Steering CommitteeSteering Committee• Set policies that govern AISSet policies that govern AIS• Ensure top-management participationEnsure top-management participation• Monitor and controlMonitor and control• Facilitate coordination and integration of IS activitiesFacilitate coordination and integration of IS activities• At Intel, called Management Review Committees (MRC)At Intel, called Management Review Committees (MRC)
AgendaAgenda• Systems Development Life Systems Development Life
Cycle (SDLC)Cycle (SDLC)• Systems Development PlanningSystems Development Planning• Feasibility AnalysisFeasibility Analysis
Development PlanningDevelopment Planning Need for planningNeed for planning– consistencyconsistency– efficiency (no duplication)efficiency (no duplication)– lower costslower costs– ensure meet overall project goalsensure meet overall project goals
– timetime– moneymoney– system objectivessystem objectives
Planning TechniquesPlanning Techniques Several techniques discussed Several techniques discussed
in textbook, such asin textbook, such as CPMCPM PERTPERT
For most AIS projects, For most AIS projects, CPM and PERT are “over-kills”CPM and PERT are “over-kills”
Most commonly used is Gantt chartMost commonly used is Gantt chart
Gantt ChartGantt Chart Bar chart with project activities listed on left-hand Bar chart with project activities listed on left-hand
side; time units (days or weeks) across top side; time units (days or weeks) across top For each activity, bar drawn from scheduled starting date to For each activity, bar drawn from scheduled starting date to
ending dateending date As activities completed, bar filled inAs activities completed, bar filled in Can use $ units instead of timeCan use $ units instead of time
Gantt Chart StructureGantt Chart Structure____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Activity Week Starting12345678
Augmented Gantt ChartAugmented Gantt Chart
TASKTASK PERSONPERSON
% % COMPLTCOMPLT
BYBYMONTHMONTH
SystemSystemDescriptDescript
ReqrmntReqrmntAnalysisAnalysis
Cost-Cost-BenefitBenefit
Augmented Gantt ChartAugmented Gantt Chart
TASKTASK February February
MarchMarch AprilApril
SystemSystemDescriptDescriptReqrmntReqrmntAnalysisAnalysisCost-Cost-BenefitBenefit
AgendaAgenda• Systems Development Life Systems Development Life
Cycle (SDLC)Cycle (SDLC)• Systems Development PlanningSystems Development Planning• Feasibility AnalysisFeasibility Analysis
Feasibility AnalysisFeasibility Analysis Systems analysis is first step in (SDLC)Systems analysis is first step in (SDLC) Feasibility studyFeasibility study (also called (also called business casebusiness case) )
prepared and updated as necessary during remaining steps prepared and updated as necessary during remaining steps in SDLCin SDLC
Steering committee uses study to decide whether to terminate Steering committee uses study to decide whether to terminate project, proceed unconditionally, or proceed conditionally project, proceed unconditionally, or proceed conditionally
Initial FeasibilityInitial Feasibility Analysis Analysis Technical feasibilityTechnical feasibility: Can system be developed : Can system be developed
using existing technology?using existing technology? Operational feasibilityOperational feasibility: Will the system be used by people in the : Will the system be used by people in the
organization?organization? Legal feasibilityLegal feasibility: Will there be conflicts with organization’s ability to : Will there be conflicts with organization’s ability to
discharge its legal obligations?discharge its legal obligations?
Initial FeasibilityInitial Feasibility Analysis Analysis
Scheduling feasibilityScheduling feasibility: : Can system be implemented Can system be implemented in time allotted? in time allotted?
Economic feasibilityEconomic feasibility: Will : Will benefits of the proposed system benefits of the proposed system exceed its estimated costs?exceed its estimated costs?
Feasibility AnalysisFeasibility Analysis Economic feasibilityEconomic feasibility is most frequently analyzed is most frequently analyzed Basic framework for feasibility analysis is capital budgeting Basic framework for feasibility analysis is capital budgeting
modelmodel– payback periodpayback period– net present value (NPV) net present value (NPV) – internal rate of return (IRR)internal rate of return (IRR)
Feasibility AnalysisFeasibility Analysis Repeated after each stageRepeated after each stage Why?Why?
project cost increases project cost increases exponentially as project exponentially as project moves through SDLCmoves through SDLC
even if sunk costs in prior stages, even if sunk costs in prior stages, cost-beneficial to abort project cost-beneficial to abort project before next stage if $ aren’t therebefore next stage if $ aren’t there
Testing exampleTesting example
Information System CostsInformation System Costs CategoriesCategories
HardwareHardware SoftwareSoftware PeoplePeople SuppliesSupplies TelecommunicationsTelecommunications Physical SitePhysical Site
Info System Costs (Info System Costs (contcont.).) When costs occurWhen costs occur
One-time One-time ((development)development) Recurring Recurring ((operationaloperational))
Indirect costsIndirect costs Overhead Overhead ((e.g., utilitiese.g., utilities)) Marginal costsMarginal costs
actual out-of-pocketactual out-of-pocket
Out-of-Pocket CostsOut-of-Pocket Costs Clerk performs 20 hours Clerk performs 20 hours
per week on taskper week on task System reduces this by 10 hoursSystem reduces this by 10 hours Clerk earns $12 an hourClerk earns $12 an hour Savings $120 per weekSavings $120 per week What’s wrong with this picture?What’s wrong with this picture?
Estimating CostsEstimating Costs Keep forecasts simpleKeep forecasts simple Explain your logicExplain your logic Rely on credible sourcesRely on credible sources Downplay intuition (Downplay intuition (hunches)hunches) Use other peopleUse other people Build in contingency (fudge) factorBuild in contingency (fudge) factor
Estimating Costs Estimating Costs Principle of Insufficient ReasonPrinciple of Insufficient Reason
If don’t have facts, If don’t have facts, assume nothingassume nothing
e.g., hardware costs have e.g., hardware costs have increased 10% per year - increased 10% per year - absent any facts assume 10% absent any facts assume 10% increase next yearincrease next year
Methods For Methods For Comparing SystemsComparing Systems Costs first, then benefitsCosts first, then benefits $ first, then qualitative factors$ first, then qualitative factors Methods:Methods:
Break-even AnalysisBreak-even Analysis Payback PeriodPayback Period Discounted Payback PeriodDiscounted Payback Period
Break-even AnalysisBreak-even Analysis Intersection ofIntersection of
Investment PeriodInvestment Period Return PeriodReturn Period
When start receiving When start receiving positive cash flowpositive cash flow
Surplus funds to be Surplus funds to be invested by Year Xinvested by Year X
Break-even PointBreak-even Point
$$
YearsYears
OldSystem OldSystem
NewSystem NewSystem
Investment PeriodInvestment Period
ReturnPeriodReturnPeriod
Break-even PointBreak-even Point
Payback PeriodPayback Period Where development costs Where development costs
offset by operational savings offset by operational savings of new systemof new system
Graphic solutionGraphic solution Feasibility MatrixFeasibility Matrix
Payback PeriodPayback Period
$$
YearsYears
OldSystem OldSystem
NewSystem NewSystemDevelop
CostsDevelop Costs
Operational CostsOperational Costs
DevelopmentAnd OperationalAreas are Equal
DevelopmentAnd OperationalAreas are Equal
Payback PeriodPayback Period
Feasibility MatrixFeasibility Matrix
TypeType CostCost
YearYear 11
YearYear 22
YearYear 33
YearYear 44
CurrentCurrentSystemSystem
6262 6565 7070 7676
NewNewSystemSystem
162162 ****
100 100 ****
3333 3535
Differ-Differ- ence ence
-100-100 -35-35 +37+37 +41+41
**** Includes one-time development costsIncludes one-time development costs
New System CostsNew System Costs While in development:While in development:
Development costs (e.g., Development costs (e.g., programming) spread throughout programming) spread throughout development period (e.g., 18 months)development period (e.g., 18 months)
Old System operational costs Old System operational costs UNTIL UNTIL new system implementednew system implemented
Example:Example: 18 month development18 month development
New System CostsNew System Costs
Develop-Develop- mentment
100100 5050
Old SystemOld SystemOperatingOperating
6262 3333 ****
New System New System OperatingOperating
1717 ****
3333 3535
TotalTotal 162162 100100 3333 3535
11 22 33 44
**** ½ year old system, ½ year new system½ year old system, ½ year new system
YearYear
Calculating Payback PeriodsCalculating Payback Periods
Type CostType Cost YearYear 11
YearYear 22
YearYear 33
YearYear 44
DifferenceDifference -100 -100 -35-35 +37+37 +41+41
CumulativeCumulative DifferenceDifference
-100-100 -135-135 -98-98 -57-57
**** ******
**** Difference positive - Includes Breakeven PointDifference positive - Includes Breakeven Point
****** Cumulative Difference not yet positive – Payback Period beyond 4 years
Cumulative Difference not yet positive – Payback Period beyond 4 years
CalculationsCalculations Assumption: All costs occur Assumption: All costs occur
equally by month across each yearequally by month across each year Principle of Insufficient ReasonPrinciple of Insufficient Reason
$120K annual expenditure = $10K $120K annual expenditure = $10K expenditures per monthexpenditures per month
For Break-even Point, calculation based For Break-even Point, calculation based on on DifferenceDifference row row
For Payback calculation, calculation For Payback calculation, calculation based on based on Cumulative Difference Cumulative Difference row row
CalculationsCalculations Payback = Year Last + APayback = Year Last + A Period Negative A + BPeriod Negative A + B CumulativeCumulative Difference Difference
A = Cumulative Difference Last Negative YearA = Cumulative Difference Last Negative YearB = Cumulative Difference Next Year After NegativeB = Cumulative Difference Next Year After Negative
NOTE: Same for Break-even, except that you use NOTE: Same for Break-even, except that you use Difference Row rather than Cumulative DifferenceDifference Row rather than Cumulative Difference
CalculationsCalculations TypeType CostCost
YearYear 33
YearYear 44
YearYear 55
DifferenceDifference +37+37 +41+41 +62+62
CumulativeCumulative DifferenceDifference -98-98 -57-57 +5+5
Previous Year wasLast Negative YearFor Break-even Point
Previous Year wasLast Negative YearFor Break-even Point
Last Negative YearFor Payback PeriodLast Negative YearFor Payback Period
CalculationsCalculations TypeType CostCost
YearYear 22
YearYear 33
YearYear 44
DifferenceDifference -35-35 +37+37 +41+41
CumulativeCumulative DifferenceDifference -135-135 -98-98 -57-57
Break-even Point = 2 + (35) / (35 + 37) = 2.48 years Break-even Point = 2 + (35) / (35 + 37) = 2.48 years
CalculationsCalculations TypeType CostCost
YearYear 33
YearYear 44
YearYear 55
DifferenceDifference -37-37 +41+41 +62+62
CumulativeCumulative DifferenceDifference -98-98 -57-57 +5+5
Payback Period = 4 + (57) / (57 + 5) = 4.92 yearsPayback Period = 4 + (57) / (57 + 5) = 4.92 years
Present Value of MoneyPresent Value of Money But profit-seeking firm could But profit-seeking firm could
earn money on development earn money on development funds invested todayfunds invested today
Return on Investment Return on Investment ((ROIROI)) Present Value of Money =Present Value of Money = 1 / (1 + ROI) ** n1 / (1 + ROI) ** n n = number of years into futuren = number of years into future Net Present Value (NPV)Net Present Value (NPV) = sum of each = sum of each
future years present valuesfuture years present values
Discounted Payback PeriodDiscounted Payback Period Don’t use for Break-even PointDon’t use for Break-even Point
There is no such thing as a There is no such thing as a Discounted Break-even PointDiscounted Break-even Point
Add 2 new rows to Feasibility MatrixAdd 2 new rows to Feasibility Matrix Discount RateDiscount Rate
(1 – i) to the power of the year(1 – i) to the power of the year Discounted Cumulative DifferenceDiscounted Cumulative Difference
Discount Rate times Cum DiffDiscount Rate times Cum Diff
ExampleExample Assume 20% ROIAssume 20% ROI
Average last 3 yearsAverage last 3 years For 1For 1stst year: year:
Discount = 1 / (1+.2)**1 = .83Discount = 1 / (1+.2)**1 = .83 For 2For 2ndnd year: year:
Discount = 1 / (1+.2)**2 = .69Discount = 1 / (1+.2)**2 = .69
Year 3Year 3 Year 4Year 4 Year 5Year 5 .58.58 .48.48 .40.40
Calculating Payback PeriodsCalculating Payback Periods
DifferenceDifference -100-100 -35-35 +37+37 DiscountDiscount (ROI = .2) (ROI = .2)
.83.83 .69.69 .58.58
DiscountedDiscounted DifferenceDifference -83-83
-25 -25 +22+22
Cum DisctdCum Disctd DifferenceDifference
-83-83 -108-108 -86-86
11 22 33
Calculating Payback PeriodsCalculating Payback Periods
DifferenceDifference +41+41 +67+67 ?????? DiscountDiscount (ROI = .2) (ROI = .2)
.48.48 .40.40 ??????
DiscountedDiscounted DifferenceDifference +20+20
+27+27 ??????
Cum DisctdCum Disctd DifferenceDifference
-66-66 -39-39 ??????
44 55 66
No payoff in 5 yearsNo payoff in 5 years 6th year???6th year???
Topics DiscussedTopics Discussed• Systems Development Life Systems Development Life
Cycle (SDLC)Cycle (SDLC)• Systems Development PlanningSystems Development Planning• Feasibility AnalysisFeasibility Analysis