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Systems Development. Dr. Yan Xiong College of Business CSU Sacramento 10/12/03. Agenda. Systems Development Life Cycle (SDLC) Systems Development Planning Feasibility Analysis. Front -end Systems Planning.

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systems development

Systems Development

Dr. Yan Xiong

College of Business

CSU Sacramento

10/12/03

agenda
Agenda
  • Systems Development Life Cycle (SDLC)
  • Systems Development Planning
  • Feasibility Analysis
systems development life cycle sdlc
Systems Development Life Cycle (SDLC)
  • Systems Development Life Cycle (SDLC) phases
    • Systems analysis
    • Conceptual design
    • Physical design
    • Implementation and conversion
    • Operations and maintenance
slide5
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)
systems development 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

Systems Development Life Cycle
feasibility analysis
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
sdlc costs and unknowns
Project

Unknowns

Project

Costs

Magnitude

TIME (SDLC Phases)

SDLC Costs and Unknowns
feasibility analysis9
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
systems development life cycle10
Conceptual Design Identify and evaluate design alternatives Develop design specifications Deliver conceptual design requirements

Feasibility analysis and decision points

Systems Development Life Cycle
systems development life cycle11
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
systems development life cycle12
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
systems development life cycle13
Operation and Maintenance Operate system Modify system Do ongoing maintenance Deliver improved system

Systems

Analysis

Systems Development Life Cycle
participants
Participants
  • Management
  • Accountants
  • IT Steering Committee
  • Project development team
    • systems analysts and programmers
  • External players
    • customers
    • vendors
accountants roles
Accountants’ Roles
  • Determine own information needs
  • Members of project development team
  • Play active role in designing system controls
  • Help perform feasibility (ROI) analyses
steering committee
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)
agenda17
Agenda
  • Systems Development Life Cycle (SDLC)
  • Systems Development Planning
  • Feasibility Analysis
development planning
Development Planning
  • Need for planning
  • consistency
  • efficiency (no duplication)
  • lower costs
  • ensure meet overall project goals
    • time
    • money
    • system objectives
planning techniques
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
gantt chart
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
gantt chart structure
Gantt Chart Structure

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Activity Week Starting

1

2

3

4

5

6

7

8

agenda24
Agenda
  • Systems Development Life Cycle (SDLC)
  • Systems Development Planning
  • Feasibility Analysis
feasibility analysis25
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
initial feasibility analysis
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?
initial feasibility analysis27
Initial Feasibility Analysis
  • Scheduling feasibility: Can system be implemented in time allotted?
  • Economic feasibility: Will benefits of the proposed system exceed its estimated costs?
feasibility analysis28
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)
feasibility analysis29
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
information system costs
Information System Costs
  • Categories
    • Hardware
    • Software
    • People
    • Supplies
    • Telecommunications
    • Physical Site
info system costs cont
Info System Costs (cont.)
  • When costs occur
    • One-time (development)
    • Recurring (operational)
  • Indirect costs
    • Overhead (e.g., utilities)
    • Marginal costs
      • actual out-of-pocket
out of pocket costs
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?
estimating costs
Estimating Costs
  • Keep forecasts simple
  • Explain your logic
  • Rely on credible sources
  • Downplay intuition (hunches)
  • Use other people
  • Build in contingency (fudge) factor
estimating costs34
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
methods for comparing systems
Methods For Comparing Systems
  • Costs first, then benefits
  • $ first, then qualitative factors
  • Methods:
    • Break-even Analysis
    • Payback Period
    • Discounted Payback Period
break even analysis
Break-even Analysis
  • Intersection of
    • Investment Period
    • Return Period
  • When start receiving positive cash flow
  • Surplus funds to be invested by Year X
break even point
Investment

Period

Old

System

New

System

$

Return

Period

Years

Break-even

Point

Break-even Point
payback period
Payback Period
  • Where development costs offset by operational savings of new system
  • Graphic solution
  • Feasibility Matrix
payback period39
Development

And Operational

Areas are Equal

Payback

Period

Payback Period

Old

System

New

System

$

Develop

Costs

Operational

Costs

Years

feasibility matrix
**

Includes one-time development costs

Feasibility Matrix
new system costs
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
calculating payback periods
Difference positive - Includes Breakeven Point

**

Cumulative Difference not yet positive –

Payback Period beyond 4 years

***

Calculating Payback Periods
calculations
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
calculations45
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

calculations46
Last Negative Year

For Payback Period

Previous Year was

Last Negative Year

For Break-even Point

Calculations
calculations47
Calculations

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

calculations48
Calculations

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

present value of money
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
discounted payback period
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
example
Example
  • Assume 20% ROI
    • Average last 3 years
  • For 1st year:

Discount = 1 / (1+.2)**1 = .83

  • For 2nd year:

Discount = 1 / (1+.2)**2 = .69

calculating payback periods53
4

5

6

No payoff in 5 years

6th year???

Calculating Payback Periods
topics discussed
Topics Discussed
  • Systems Development Life Cycle (SDLC)
  • Systems Development Planning
  • Feasibility Analysis
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