System Design and Analysis KEY TERMS 1. Baseline Project Plan (BPP) 2. Break-even analysis 3. Business case 4.

Discount rate 5. Economic feasibility 6. Intangible benefit 7. Intangible cost 8. Legal and contractual feasibility 9. One-time cost 10. Operational feasibility 11. Political feasibility 12. Present value 13. Project Scope Statement (PSS) 14. Recurring cost 15. Schedule feasibility 16. Tangible benefit 17. Tangible cost 18. Technical feasibility 19. Time value of money (TVM) 20. Walkthrough

Time value of money (TVM)The concept that money available today is worth more than the same amount tomorrow Political feasibilityThe process of evaluating how key stakeholders within the organization view the proposed system Project Scope Statement (PSS) A document prepared for the customer that describes what the project will deliver and outlines generally at a high level all work required to complete the project Business caseThe justification for an information system, presented in terms of the tangible and intangible economic benefits and costs, and the technical and organizational feasibility of the proposed system Economic feasibilityA process of identifying the financial benefits and costs associated with a development project Operational feasibilityThe process of assessing the degree to which a proposed system solves business problems or takes advantage of business opportunities Recurring costA cost resulting from ongoing evolution and use of a system Discount rateThe rate of return used to compute the present value of future cash flows

Intangible benefitA benefit derived from the creation of an information system that cannot be easily measured in dollars or with certainty Schedule feasibilityThe process of assessing the degree to which the potential time frame and completion dates for all major activities within a project meet organizational deadlines and constraints for affecting change. Tangible costA cost associated with an information system that can be easily measured in dollars and certainty Walkthrough A peergroup review of any product created during the system development process Technical feasibilityA process of assessing the development organization's ability to construct the proposed system One-time costA cost associated with the project start-up and development or system startup Present valueThe current value of a future cash flow Tangible benefitA benefit derived from the creation of an information system that can be measured in dollars and with certainty Legal and contractual feasibilityThe process of assessing potential legal and contractual ramifications due to the construction of a system Intangible costA cost associated with an information system that cannot be easily measured in dollars or with certainty Baseline Project Plan (BPP)This plan is the major outcome and deliverable from the project initiation planning phase and contains the best estimates of the project's scope, benefits, costs, risks, and resource requirements Break-even analysisA type of cost-benefit analysis to identify at what point (if ever) the benefits equal the costs REVIEW QUESTIONS 1. Contrast the following terms:

a. Break-even analysis-Finds the amount of time required for the cumulative cash flow from a project to equal its initial and ongoing investment. Present value-Represents the current value of a future cash flow. Net present value-Uses a discount rate, determined from the companys cost of capital, to establish the present value of a project. Return on investment-The ratio of the net cash receipts of the project divided by the cash outlays of the project.

b. Economic feasibility-Identifies the financial benefits and costs associated with a development project. Legal and contractual feasibility-Assesses potential legal and contractual ramifications due to the construction of a system. Operational feasibility-Assesses the degree to which a proposed system solves business problems or takes advantage of business opportunities. Political feasibility-Evaluates how key stakeholders within the organization view the proposed system. Schedule feasibility-Determines the degree to which the potential time frame and completion dates for all major activities within a project meet organizational deadlines and constraints for affecting change.

c. Intangible benefits-Are derived from the creation of an information system that cannot be easily measured in dollars or with certainty. Tangible benefits-Are derived from the creation of an information system that can be measured in dollars and with certainty.

d. Intangible costs-Costs associated with an information system that cannot be easily measured in terms of dollars or with certainty. Tangible costs-Costs associated with an information system that can be measured in dollars and with certainty.

2. List and describe the steps in the project initiation and planning process. The steps in the project initiation process are as follows:

Establishing the Project Initiation TeamEstablishing a Relationship with the Customer Establishing the Project Initiation Plan Establishing Management Procedures Establishing the Project Management Environment and Project Workbook Establishing the Project Charter

Project initiation focuses on activities that assist in organizing a team to conduct project planning. Project planning is the process of defining clear, discrete activities and the work needed to complete each activity within a single project. The objective of the project planning process is the development of a Baseline Project Plan (BPP) and a Statement of Work (SOW). The steps in the project planning process are as follows: Describing the Project Scope, Alternatives, and Feasibility Dividing the Project into Manageable Tasks Estimating Resources and Creating a Resource Plan Developing a Preliminary Schedule Developing a Communication Plan Determining Project Standards and Procedures Identifying and Assessing Risk Creating a Preliminary Budget Developing the Project Scope Statement Setting a Baseline Project Plan

3. What is contained in a BPP? Are the content and format of all baseline plans the same? Why or why not? The Baseline Project Plan (BPP) contains all information collected and analyzed during project initiation and planning. The plan reflects the best estimate of the projects scope, benefits, costs, risks, and resource requirements given the current understanding of the project. The BPP specifies detailed project activities for the next life cycle phase, analysis, and less detail for subsequent project phases, depending on the results of the analysis phase. The content and format of a BPP depends on the size, complexity, and standards of an organization. 4. Describe three commonly used methods for performing economic cost-benefit analysis.

Three commonly used methods for performing economic cost-benefit analysis are as follows: 1. Net present value (NPV) - Uses a discount rate determined from the companys cost of capital to establish the present value of a project. The discount rate is used to determine the present value of both cash receipts and outlays. 2. Return on investment (ROI) - The ratio of the net cash receipts of the project divided by the cash outlays of the project. Trade-off analysis can be made among projects competing for investment by comparing their representative ROI ratios. 3. Break-even analysis (BEA) - Finds the amount of time required for the cumulative cash flow from a project to equal its initial and ongoing investment. 5. List and discuss the different types of project feasibility factors. Is any factor most important? Why or why not? The different types of project feasibility factors are as follows: Economic feasibility - Identifies the financial benefits and costs associated with a development project. Technical feasibility - Assesses the development organizations ability to construct a proposed system. Operational feasibility - Assesses the degree to which a proposed system solves business problems or takes advantage of business opportunities. Schedule feasibility - Determines the degree to which the potential time frame and completion dates for all major activities within a project meet organizational deadlines and constraints for affecting change. Legal and contractual feasibility - Evaluates the potential legal and contractual ramifications due to the construction of a system. Political feasibility -Evaluates how key stakeholders within the organization view the proposed system. No factor is most important; one factor may be more important in some situations, while another factor is more important in other situations. 6. What are the potential consequences of not assessing the technical risks associated with an information systems development project?

The potential consequences of not assessing the technical risks associated with an information systems development project and managing risks are as follows: Failure to attain expected benefits from the project Inaccurate project cost estimates Inaccurate project duration estimates Failure to achieve adequate system performance levels Failure to adequately integrate the new system with existing hardware, software, or organizational procedures.

7. In what ways could you identify that one IS project is riskier than another? There are many ways to identify that one IS project is riskier than another. The factors used to assess a projects risk are as follows: o Project size o Number of members on the project team o Project duration time o Number of organizational departments involved in project o Size of programming effort (Example: hours, function points) o Number of outsourcing partners o Project structure o New system or renovation of existing system(s) o Organizational, procedural, structural, or personnel changes resulting form system o User perceptions and willingness to participate in effort o Management commitment to system o Amount of user information systems development effort o Development group o Familiarity with target hardware, software development environment, o tools, and operating systems o Familiarity with proposed application area o Familiarity with building similar systems of similar size o User Group o Familiarity with information systems development process o Familiarity with proposed application area

o Familiarity with using similar systems 8. What are the types or categories of benefits of an IS project? The two primary types or categories of benefits of an IS projects are as follows: 1. Tangible benefits- Benefits derived from the creation of an information system that can be measured in dollars and with certainty. 2. Intangible benefits -Benefits derived from the creation of an information system that cannot be easily measured in dollars or with certainty. 9. What intangible benefits might an organization obtain from the development of an information system? The intangible benefits that an organization might obtain from the development of an information system are derived from the creation of an information system and cannot be easily measured in dollars or with certainty. The Intangible benefits from the development of an information system are as follows: Competitive necessity More timely information Improved organizational planning Increased organizational flexibility Promotion of organizational learning and understanding Availability of new, better, or more information Ability to investigate more alternatives Faster decision making More confidence in decision quality Improved processing efficiency Improved asset utilization Improved resource control Increased accuracy in clerical operations Improved work process that can improve employee morale or customer satisfaction o Positive impacts on society o Improved social responsibility o Better usage of resources (greener) o o o o o o o o o o o o o o

10. Describe the concept of the time value of money. How does the discount rate affect the value of $1 today versus one year from today? The time value of money (TVM) is the concept that money available today is worth more than the same amount tomorrow. The discount rate is the rate of return used to compute the present value of future cash flows. The rate at which money can be borrowed or invested is called the cost of capital also known as the discount rate for TVM calculations. Therefore, the discount rate affects the value of $1 today versus one year from today in that it is worth more today $1in one year from today as money can be invested. 11. Describe the structured walkthrough process. What roles need to be performed during a walkthrough? The walkthrough process is the peer group review of any product created during the systems development process also called a structured walkthrough and is widely used by professional development organizations. It is an effective way to ensure the quality of an information system and have become a common day-to-day activity for many systems analyses. Most walkthroughs are not rigidly formal or exceeding long in duration. It is important, however, that a specific agenda be established for the walkthrough so that all attendees understand what is to be covered and the expected completion time. At the walkthrough meetings individuals play the following specific roles:At walkthrough meetings, Coordinator- Plans the meeting and facilitates a smooth meeting process. This person may be the project leader or a lead analyst responsible for the current life cycle step. Presenter - Describes the work product to the group. The presenter is usually an analyst who has done all or some of the work being presented. User (or group) - Ensures that the work product meets the needs of the projects customers. This user would usually be someone not on the project team. Secretary - Takes notes and records decisions or recommendations made by the group. This may be a clerk assigned to the project team, or it may be one of the analysts on the team.

Standards bearer - Ensures that the work product adheres to the organizations technical standards. Many larger organizations have staff groups within the unit responsible for establishing standard procedures, methods, and documentation formats. These standards bearers validate the work so that others can use it in the development organization. Maintenance oracle - Reviews the work product in terms of future maintenance activities. The goal is to make the system and its documentation easy to maintain.

Walkthrough meetings are a common occurrence in most systems development groups and can be used for more activities than reviewing the BPP, including: System specifications Logical and physical designs Code or program segments Test procedures and results Manuals and documentation 12. Describe a project that would be considered as risky in terms of technical feasibility. A project that would be considered as risky in terms of technical feasibility is as follows: 1. Large project are riskier than small project- Project size with which the development group typically works. A small project for one development group may be relatively large for another. 2. A system in which the requirements are easily obtained and highly structured will be less risky than one in which requirements are messy, ill structured, ill defined, or subject to the judgment of an individual. 3. The development of a system employing commonly used or standard technology will be less risky than one employing novel or nonstandard technology. The unforeseen technical problems are higher when the development group lacks knowledge related to some aspect of the technology environment. A less risky approach is to use standard development tools and hardware environments.

4. A project is less risky when the user group is familiar with the systems development process and application area than if the user group is unfamiliar with them. Successful IS projects require active involvement and cooperation between the user and development groups. Users familiar with the application area and systems development process tend to better understand the need for their involvement its influence over the success of the project. 13. In terms of cost-benefit analysis, explain the net present value and return on investment. Why would these calculations be used? In terms of cost-benefit analysis the: Net present value investment Uses a discount rate, determined from the companys cost of capital to establish the present value of a project. The discount rate is used to determine the present value of both cash receipts and outlays. Return on investment Is the ratio of the net cash receipts of the project divided by the cash outlays of the project. Trade-off analysis can be made among projects competing for investment by comparing their representative ROI ratios. 14. What is a break-even point for a project? How is it calculated? A break-even point for a project has the objective to discover at what point (if ever) benefits equal costs as for example when breakeven occurs. To conduct the analysis the NPV of the yearly cash flows are determined. The yearly cash flows are calculated by subtracting both the on-time cost and the present values of the recurring costs from the present value of the yearly benefits. The overall NPV of the cash flow reflects the total cash flows for all preceding years. Formula: Break-Even Ratio= Yearly NPV Cash Flow Overall NPV Cash Flow Yearly NPV Cash Flow