The Systems Analysis Toolkit

1. The Systems Analysis Toolkit Feasibility and Cost Analysis Tools

2. Systems Analysis and Design Fourth Edition The Systems Analyst’s Toolkit Part 2 Feasibility and Cost Analysis Tools

3. Systems Analysis and Design Fourth Edition Objectives Define economic feasibility Identify the cost considerations that analysts consider throughout the SDLC Understand chargeback methods and how they are used Use cost-benefit analysis, payback analysis, return on investment analysis, and present value analysis

4. Systems Analysis and Design Fourth Edition Introduction A project is economically feasible if the future benefits outweigh the costs The Systems Analyst’s Toolkit explains how to calculate a project’s costs and benefits Cost-benefit analysis is performed when Conducting a preliminary investigation Evaluating a project Making recommendations to management

5. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Cost classifications Costs can be classified in several ways Tangible and intangible costs Direct and indirect costs Fixed and variable costs Developmental and operational costs

6. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Direct and indirect costs Direct costs are those that can be associated with the development of a specific system Examples: project team salaries, new hardware or software needed for the system Indirect costs, or overhead expenses, cannot be attributed to a particular system Examples: network administrator’s salary, copy machine rental costs

7. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Fixed and variable costs Fixed costs are relatively constant and do not depend on a level of activity or effort Examples: salaries, rental charges Variable costs depend on the level of activity Examples: printer paper, supplies, telephone line charges

8. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Developmental and operational costs Development costs are incurred only once, at the time the system is developed Examples: system development team salaries, user training, hardware purchase Operational costs are incurred after the system is implemented and continue while the system is in use Examples: system maintenance, ongoing training, annual license fees

9. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Managing information systems costs and charges Management requires cost information Direct costs can be associated with a specific system, while indirect costs must be allocated A chargeback method uses accounting entries to allocate the indirect IS costs No charge method Fixed charge method Variable charge method based on resource use Variable charge method based on volumes

10. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Managing information systems costs and charges Chargeback methods No charge method Treats IS department indirect expenses as a necessary cost of doing business, which benefits the entire company The IS group is called a cost center because it generates no offsetting credits for services performed User departments are not charged for indirect IS expenses

11. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Managing information systems costs and charges Chargeback methods Fixed charge method Indirect IS costs are divided among all other departments in the form of a fixed monthly charge, using various formulas In this method, the IS group is called a profit center because it is expected to break even or show a profit on the sale of services User departments are charged with a fixed share of indirect IS expenses

12. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Managing information systems costs and charges Chargeback methods Variable charge method based on resource use Resources might include CPU time, connect time to a remote computer, communication lines or printers required Costs can vary from month to month In this method, the IS group is called a profit center User departments are charged with indirect IS expenses on the basis of resources used

13. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Managing information systems costs and charges Chargeback methods Variable charge method based on volume Resources might include CPU time, connect time to a remote computer, communication lines or printers required Costs can vary from month to month In this method, the IS group is called a profit center User departments are charged with indirect IS expenses on the basis of resources used

14. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Benefit classifications Benefits can be classified into the same categories as costs Tangible and intangible benefits Direct and indirect benefits Fixed and variable benefits Developmental and operational benefits Benefits also can be classified as positive benefits and cost-avoidance benefits

15. Systems Analysis and Design Fourth Edition Describing Costs and Benefits Positive and cost-avoidance benefits Positive benefits are a direct result of the new information system Examples: increased revenues, improved services, higher morale, better management Cost-avoidance benefits refer to expenses that would be necessary if the new system is not installed Examples: handling work with current staff instead of hiring, not having to replace hardware or software

16. Systems Analysis and Design Fourth Edition Cost-Benefit Analysis Cost-benefit analysis is the process of comparing anticipated costs to anticipated benefits Cost-benefit analysis produces reliable information for making decisions Common cost-benefit techniques Payback analysis Return on investment (ROI) analysis Present value analysis

17. Systems Analysis and Design Fourth Edition Cost-Benefit Analysis Payback analysis Payback analysis is the process of determining how long it takes for an information system, to pay for itself Four step process 1. Determine the system’s initial development cost 2. Estimate annual benefits 3. Determine annual operating costs 4. Find the payback period by comparing total costs to accumulated benefits