Feasibility Study - Management

1. Feasibility Study:
• Economic feasibility
• Technical feasibility
• Operational feasibility
• Organizational feasibility
• Legal feasibility
• Schedule feasibility
Feasibility Analysis:
“Once is not enough”
(Creeping Commitment approach)

2. Feasibility Study
• Economic feasibility
– cost-benefit analysis
• Technical feasibility
– ability to construct system - risks
– greater returns from riskier projects - manage risks
• fail to attain benefits,
• cost/ time overruns
• inadequate system performance levels
• unable to integrate with existing hardware, software

3. • Technical risk
– larger projects are riskier
• project team size, project duration, number of
organizational units involved, programming effort
– structured and easily obtainable requirements less
risky
– use of standard technology less risky than novel or
non standard technology
• development team familiarity with hardware, software
development environment, OS; application area; systems
of similar scope
– less risk when user group is familiar with system
development process and application area

4. • Operational feasibility
– likelihood of project attaining desired objectives
– how new system will affect organizational
structures and processes,
– how it fits into current day-to-day operations
• Organizational/political feasibility
– how key stakeholders in organization view system
– system can affect distribution of information, thus
power

5. • Schedule feasibility
– likelihood that timeframes can be met and that
this is adequate to meet organization’s needs
• resource availability to enable schedule
• Legal feasibility
• copyrights, anti-trust laws (systems that share data
across organizations), financial reporting requirements,
contractual obligations, software ownership,
outsourcing arrangements, etc.

6. Work Project steps Estimating
Completed Accuracy
2% Project proposal 80%
with Feasibility
User Requirements
System Definition
15% Feasibility Study 40%
Preliminary Design
30% Feasibility Study 20%
Detailed Design
Program Design
60% Feasibility Study 10%
Program and Test
Implementation Plan
80% Feasibility Study 10%
System Test
Installation
Training
Acceptance /ChangeOver
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7. Economic Feasibility:
• System Costs:
– Development Costs
• IS Personnel, consultants
• hardware, software procurement
• data conversion
• documentation, user trg
• Computer room, etc
– Production Costs
• operation and maintenance
• manpower, software / hardware upgrading,supplies
• System Benefits:
– Tangible
• reduced operating costs, transaction costs errors

8. • Increased transaction throughput
– Intangible
• improved customer relations
• better decision making, etc
Cost Benefit Analysis:
• Payback Point: Development Costs
(Years to payback) Benefits per year
• Sensitivity Factors
– Possible variation in cost/benefit estimates
1.1 Cost can be higher by 10%
• Effect of Inflation

9. • Time Value of Money
– Present Value (PV) = amt * 1 / (1 +c) ^ n
n : # of periods in time
c : Cost of Money ( discount rate )
• Profitability Index
– Earnings per dollar invested
– (Present value of total cash flow) (value of initial investment )
– Yearly cash flow = (Projected Annual Benefits) (Projected Annual
Production Cost)

12. Calculation of Profitability Index (in last example):
Year1 Year 2 Year 3 Year 4 Year 5
PV of Yearly 40,918 38,632 36,480 34,428 32,480
cash flow
(eg. 63,818-22,900 = 40, 918)
Total PV yearly Cash Flow = 18,938
PI = Total PV of Yearly Cash Flow/Total Development Cost
= 182,938/107,250
= 1.71

13. • Example of Cost Benefit analysis for Tri-
County Insurance
Note that this example does not consider sensitivity factors or inflation.
The discount rate used for calculations is 8%.
Calculations in this example are done a little differently than in the earlier
example – Present values are calculated for the cash-flows here,
whereas in the last example the PVs were calculated for the costs and
benefits separately.