Systems Development

1. Systems Development Dr. Yan Xiong College of Business CSU Sacramento 10/12/03

2. Agenda • Systems Development Life Cycle (SDLC) • Systems Development Planning • Feasibility Analysis

3. Front -end Systems Planning

4. Systems Development Life Cycle (SDLC) • Systems Development Life Cycle (SDLC) phases • Systems analysis • Conceptual design • Physical design • Implementation and conversion • Operations and maintenance

5. SDLC • Each phase broken down into several steps or tasks • Each step has: • Start date • End date • Product (deliverable) • Steps may be repeated (Waterfall Model)

6. 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 Systems Development Life Cycle

7. Feasibility Analysis • Traditionally, done once at project beginning, then forgotten • Should be redone after each SDLC stage • SDLC costs increase exponentially through each succeeding phase • Project uncertainty (# unknowns) decreases with each SDLC stage

8. Project Unknowns Project Costs Magnitude TIME (SDLC Phases) SDLC Costs and Unknowns

9. Feasibility Analysis • Forget about sunk costs! • they are the past • Alaska state personnel system • So, at end of each SDLC phase • conduct new feasibility analysis • now fewer unknowns than before • make decision of whether or not to proceed with SDLC

10. Conceptual Design Identify and evaluate design alternatives Develop design specifications Deliver conceptual design requirements Feasibility analysis and decision points Systems Development Life Cycle

11. Physical Design Design output Design data base Design input Develop programs Develop procedures Design controls Deliver developed system Feasibility analysis and decision points Systems Development Life Cycle

12. 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 Feasibility analysis and decision points Systems Development Life Cycle

13. Operation and Maintenance Operate system Modify system Do ongoing maintenance Deliver improved system Systems Analysis Systems Development Life Cycle

14. Participants • Management • Accountants • IT Steering Committee • Project development team • systems analysts and programmers • External players • customers • vendors

15. Accountants’ Roles • Determine own information needs • Members of project development team • Play active role in designing system controls • Help perform feasibility (ROI) analyses

16. Steering Committee • Set policies that govern AIS • Ensure top-management participation • Monitor and control • Facilitate coordination and integration of IS activities • At Intel, called Management Review Committees (MRC)

17. Agenda • Systems Development Life Cycle (SDLC) • Systems Development Planning • Feasibility Analysis

18. Development Planning • Need for planning • consistency • efficiency (no duplication) • lower costs • ensure meet overall project goals • time • money • system objectives

19. Planning Techniques • Several techniques discussed in textbook, such as • CPM • PERT • For most AIS projects, CPM and PERT are “over-kills” • Most commonly used is Gantt chart

20. Gantt Chart • Bar chart with project activities listed on left-hand side; time units (days or weeks) across top • For each activity, bar drawn from scheduled starting date to ending date • As activities completed, bar filled in • Can use $ units instead of time

21. Gantt Chart Structure ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Activity Week Starting 1 2 3 4 5 6 7 8

22. Augmented Gantt Chart

23. Augmented Gantt Chart

24. Agenda • Systems Development Life Cycle (SDLC) • Systems Development Planning • Feasibility Analysis

25. Feasibility Analysis • Systems analysis is first step in (SDLC) • Feasibility study (also called business case) prepared and updated as necessary during remaining steps in SDLC • Steering committee uses study to decide whether to terminate project, proceed unconditionally, or proceed conditionally

26. Initial Feasibility Analysis • Technical feasibility: Can system be developed using existing technology? • Operational feasibility: Will the system be used by people in the organization? • Legal feasibility: Will there be conflicts with organization’s ability to discharge its legal obligations?

27. Initial Feasibility Analysis • Scheduling feasibility: Can system be implemented in time allotted? • Economic feasibility: Will benefits of the proposed system exceed its estimated costs?

28. Feasibility Analysis • Economic feasibility is most frequently analyzed • Basic framework for feasibility analysis is capital budgeting model • payback period • net present value (NPV) • internal rate of return (IRR)

29. Feasibility Analysis • Repeated after each stage • Why? • project cost increases exponentially as project moves through SDLC • even if sunk costs in prior stages, cost-beneficial to abort project before next stage if $ aren’t there • Testing example

30. Information System Costs • Categories • Hardware • Software • People • Supplies • Telecommunications • Physical Site

31. Info System Costs (cont.) • When costs occur • One-time (development) • Recurring (operational) • Indirect costs • Overhead (e.g., utilities) • Marginal costs • actual out-of-pocket

32. Out-of-Pocket Costs • Clerk performs 20 hours per week on task • System reduces this by 10 hours • Clerk earns $12 an hour • Savings $120 per week • What’s wrong with this picture?

33. Estimating Costs • Keep forecasts simple • Explain your logic • Rely on credible sources • Downplay intuition (hunches) • Use other people • Build in contingency (fudge) factor

34. Estimating Costs • Principle of Insufficient Reason • If don’t have facts, assume nothing • e.g., hardware costs have increased 10% per year - absent any facts assume 10% increase next year

35. Methods For Comparing Systems • Costs first, then benefits • $ first, then qualitative factors • Methods: • Break-even Analysis • Payback Period • Discounted Payback Period

36. Break-even Analysis • Intersection of • Investment Period • Return Period • When start receiving positive cash flow • Surplus funds to be invested by Year X

37. Investment Period Old System New System $ Return Period Years Break-even Point Break-even Point

38. Payback Period • Where development costs offset by operational savings of new system • Graphic solution • Feasibility Matrix

39. Development And Operational Areas are Equal Payback Period Payback Period Old System New System $ Develop Costs Operational Costs Years

40. ** Includes one-time development costs Feasibility Matrix

41. New System Costs • While in development: • Development costs (e.g., programming) spread throughout development period (e.g., 18 months) • Old System operational costs UNTIL new system implemented • Example: • 18 month development

42. ½ year old system, ½ year new system ** Year 1 2 3 4 New System Costs

43. Difference positive - Includes Breakeven Point ** Cumulative Difference not yet positive – Payback Period beyond 4 years *** Calculating Payback Periods

44. Calculations • Assumption: All costs occur equally by month across each year • Principle of Insufficient Reason • $120K annual expenditure = $10K expenditures per month • For Break-even Point, calculation based on Difference row • For Payback calculation, calculation based on Cumulative Difference row

45. Calculations Payback = Year Last + A Period Negative A + B Cumulative Difference A = Cumulative Difference Last Negative Year B = Cumulative Difference Next Year After Negative NOTE: Same for Break-even, except that you use Difference Row rather than Cumulative Difference

46. Last Negative Year For Payback Period Previous Year was Last Negative Year For Break-even Point Calculations

47. Calculations Break-even Point = 2 + (35) / (35 + 37) = 2.48 years

48. Calculations Payback Period = 4 + (57) / (57 + 5) = 4.92 years

49. Present Value of Money • But profit-seeking firm could earn money on development funds invested today • Return on Investment (ROI) • Present Value of Money = 1 / (1 + ROI) ** n • n = number of years into future • Net Present Value (NPV) = sum of each future years present values

50. Discounted Payback Period • Don’t use for Break-even Point • There is no such thing as a Discounted Break-even Point • Add 2 new rows to Feasibility Matrix • Discount Rate • (1 – i) to the power of the year • Discounted Cumulative Difference • Discount Rate times Cum Diff