Preliminary Analysis

The main ob"ectives of preliminary analysis is to identify the customer#s needs, evaluate system concept for feasibility, perform economic and technical analysis, perform cost benefit analysis and create system definition that forms the foundation for all subse uent engineering works. There should be enough expertise available for hardware and software for doing analysis. $hile performing analysis, the following uestions arise.

%ow much time should be spent on it& As such, there are no rules or formulas available to decide on this. %owever, si!e, complexity, application field, end-use, contractual obligations are few parameters on which it should be decided. 'ther ma"or uestion that arises is who should do it. $ell an experienced well-trained analyst should do it. (or large pro"ect, there can be an analysis team.

After the preliminary analysis, the analyst should report the findings to management, with recommendations outlining the acceptance or re"ection of the proposal.

Feasibility study
The feasibility study is conducted to assist the decision-makers in making the decision that will be in the best interest of the school food service operation. The extensive research, conducted in a non-biased manner, will provide data upon which to base a decision. A feasibility study could be used to test a new working system, which could be used because:

The current system may no longer suit its purpose, Technological advancement may have rendered the current system redundant, The business is expanding, allowing it to cope with extra work load, Customers are complaining about the speed and uality of work the business provides, Competitors are not winning a big enough market share due to an effective integration of a computeri!ed system.

Although few businesses would not benefit from a computeri!ed system at all, the process of carrying out this feasibility study makes the purchaser)client think carefully about how it is going to be used. After re uest clarification, analyst proposes some solutions. After that for each solution it is checked whether it is practical to implement that solution. This is done through feasibility study. *n this various aspects like whether it is technically or economically feasible or not. +o depending upon the aspect on which feasibility is being done it can be categori!ed into four classes:

Technical (easibility ,conomic (easibility 'perational (easibility -egal (easibility

The outcome of the feasibility study should be very clear. *t should answer the following issues.

*s there an alternate way to do the "ob in a better way& $hat is recommended&

Technical Feasibility
*n technical feasibility the following issues are taken into consideration.

$hether the re uired technology is available or not $hether the re uired resources are available - .anpower- programmers, testers / debuggers - +oftware and hardware

'nce the technical feasibility is established, it is important to consider the monetary factors also. +ince it might happen that developing a particular system may be technically possible but it may re uire huge investments and benefits may be less. (or evaluating this, economic feasibility of the proposed system is carried out.

Economic Feasibility
(or any system if the expected benefits e ual or exceed the expected costs, the system can be "udged to be economically feasible. *n economic feasibility, cost benefit analysis is

done in which expected costs and benefits are evaluated. ,conomic analysis is used for evaluating the effectiveness of the proposed system. *n economic feasibility, the most important is cost-benefit analysis. As the name suggests, it is an analysis of the costs to be incurred in the system and benefits derivable out of the system. Click on the link below which will get you to the page that explains what cost benefit analysis is and how you can perform a cost benefit analysis. Cost 0enefit Analysis

Operational Feasibility
'perational feasibility is mainly concerned with issues like whether the system will be used if it is developed and implemented. $hether there will be resistance from users that will effect the possible application benefits& The essential uestions that help in testing the operational feasibility of a system are following.

1oes management support the pro"ect& Are the users not happy with current business practices& $ill it reduce the time 2operation3 considerably& *f yes, then they will welcome the change and the new system. %ave the users been involved in the planning and development of the pro"ect& ,arly involvement reduces the probability of resistance towards the new system. $ill the proposed system really benefit the organi!ation& 1oes the overall response increase& $ill accessibility of information be lost& $ill the system effect the customers in considerable way&

Legal Feasibility
*t includes study concerning contracts, liability, violations, and legal other traps fre uently unknown to the technical staff.

Cost Benefit Analysis

1eveloping an *T application is an investment. +ince after developing that application it provides the organi!ation with profits. 4rofits can be monetary or in the form of an improved working environment. %owever, it carries risks, because in some cases an estimate can be wrong. And the pro"ect might not actually turn out to be beneficial. Cost benefit analysis helps to give management a picture of the costs, benefits and risks.

*t usually involves comparing alternate investments. Cost benefit determines the benefits and savings that are expected from the system and compares them with the expected costs. The cost of an information system involves the development cost and maintenance cost. The development costs are one time investment whereas maintenance costs are recurring. The development cost is basically the costs incurred during the various stages of the system development. ,ach phase of the life cycle has a cost. +ome examples are :

4ersonnel , uipment +upplies 'verheads Consultants# fees

Cost and Benefit Categories

*n performing Cost benefit analysis 2C0A3 it is important to identify cost and benefit factors. Cost and benefits can be categori!ed into the following categories. There are several cost factors)elements. These are hardware, personnel, facility, operating, and supply costs. *n a broad sense the costs can be divided into two types

1. Development costs1evelopment costs that are incurred during the development of the system are one time investment.

$ages , uipment

2. Operating costs,
e.g. , $ages +upplies 'verheads

Another classification of the costs can be:

Hardware/software costs:
*t includes the cost of purchasing or leasing of computers and it#s peripherals. +oftware costs involves re uired software costs.

Personnel costs:
*t is the money, spent on the people involved in the development of the system. These expenditures include salaries, other benefits such as health insurance, conveyance allowance, etc.

Facility costs:
,xpenses incurred during the preparation of the physical site where the system will be operational. These can be wiring, flooring, acoustics, lighting, and air conditioning.

Operating costs:
'perating costs are the expenses re uired for the day to day running of the system. This includes the maintenance of the system. That can be in the form of maintaining the hardware or application programs or money paid to professionals responsible for running or maintaining the system.

!pply costs:
These are variable costs that vary proportionately with the amount of use of paper, ribbons, disks, and the like. These should be estimated and included in the overall cost ofthe system.

Benefits
$e can define benefit as 4rofit or 0enefit 5 *ncome - Costs 0enefits can be accrued by : - *ncreasing income, or - 1ecreasing costs, or - both The system will provide some benefits also. 0enefits can be tangible or intangible, direct or indirect. *n cost benefit analysis, the first task is to identify each benefit and assign a monetary value to it.

The two main benefits are improved performance and minimi!ed processing costs. (urther costs and benefits can be categori!ed as

"angi#le or $ntangi#le %osts and &enefits

Tangible cost and benefits can be measured. %ardware costs, salaries for professionals, software cost are all tangible costs. They are identified and measured.. The purchase of hardware or software, personnel training, and employee salaries are example of tangible costs. Costs whose value cannot be measured are referred as intangible costs. The cost of breakdown of an online system during banking hours will cause the bank lose deposits. 0enefits are also tangible or intangible. (or example, more customer satisfaction, improved company status, etc are all intangible benefits. $hereas improved response time, producing error free output such as producing reports are all tangible benefits. 0oth tangible and intangible costs and benefits should be considered in the evaluation process.

Direct or $ndirect %osts and &enefits

(rom the cost accounting point of view, the costs are treated as either direct or indirect. 1irect costs are having rupee value associated with it. 1irect benefits are also attributable to a given pro"ect. (or example, if the proposed system that can handle more transactions say 678 more than the present system then it is direct benefit. *ndirect costs result from the operations that are not directly associated with the system. *nsurance, maintenance, heat, light, air conditioning are all indirect costs.

Fi'ed or (aria#le %osts and &enefits

+ome costs and benefits are fixed. (ixed costs don#t change. 1epreciation of hardware, *nsurance, etc are all fixed costs. 9ariable costs are incurred on regular basis. :ecurring period may be weekly or monthly depending upon the system. They are proportional to the work volume and continue as long as system is in operation. (ixed benefits don#t change. 9ariable benefits are reali!ed on a regular basis.

Performing Cost Benefit Analysis (CBA)

,xample: Cost for the proposed system 2 figures in ;+1 Thousands3

0enefit for the propose system

4rofit 5 0enefits - Costs 5 <==, === ->7?, === 5 ;+1 >?@, === +ince we are gaining , this system is feasible. +teps of C0A can briefly be described as:

,stimate the development costs, operating costs and benefits 1etermine the life of the system $hen will the benefits start to accrue& $hen will the system become obsolete& 1etermine the interest rate This should reflect a realistic low risk investment rate.

Select E al!ation "ethod

$hen all the financial data have been identified and broken down into cost categories, the analyst selects a method for evaluation. There are various analysis methods available. +ome of them are following. >. 4resent value analysis 6. 4ayback analysis <. Aet present value

?. Aet benefit analysis 7. Cash-flow analysis @. 0reak-even analysis

Present al!e analysis#

*t is used for long-term pro"ects where it is difficult to compare present costs with future benefits. *n this method cost and benefit are calculated in term of today#s value of investment. To compute the present value, we take the following formula $here,

i is the rate of interest / n is the time ,xample: 4resent value of B<=== invested at >78 interest at the end of 7th year is calculates as 4 5 <===)2> C .>737 5 >?D>.7< Table below shows present value analysis for 7 years Year > 6 < ? 7 Estimation Future Value <=== <=== <=== <=== <=== Present Value 6@=E.@D 66@E.?< >DF6.7? >F>7.67 >?D>.7< Cumulative present Value of Benefits 6@=E.@D ?EFF.>6 @D?D.@@ E7@?.D> >==7@.??

$et Present %al!e # $PA

The net present value is e ual to benefits minus costs. *t is expressed as a percentage of the investment. Aet 4resent 9alue5 Costs - 0enefits

8 5 Aet 4resent 9alue)*nvestments ,xample: +uppose total investment is B7==== and benefits are BE==== Then Aet 4resent 9alue 5 B2E==== - 7====3 5 B<==== 8 5 <====)E==== 5.<F7

Brea&'e en Analysis#
'nce we have determined what is estimated cost and benefit of the system it is also essential to know in what time will the benefits are reali!ed. (or that break-even analysis is done. 0reak -even is the point where the cost of the proposed system and that of the current one are e ual. 0reak-even method compares the costs of the current and candidate systems. *n developing any candidate system, initially the costs exceed those of the current system. This is an investment period. $hen both costs are e ual, it is break-even. 0eyond that point, the candidate system provides greater benefit than the old one. This is return period.

(ig. <.> is a break-even chart comparing the costs of current and candidate systems. The attributes are processing cost and processing volume. +traight lines are used to show the model#s relationships in terms of the variable, fixed, and total costs of two processing methods and their economic benefits. 0# point is break-even. Area after 0# is return period. A#A0# area is investment area. (rom the chart, it can be concluded that when the transaction are lower than F=,=== then the present system is economical while more than F=,=== transaction would prefer the candidate system.

Cash'flo( Analysis#
+ome pro"ects, such as those carried out by computer and word processors services, produce revenues from an investment in computer systems. Cash-flow analysis keeps track of accumulated costs and revenues on a regular basis.