System Request and Feasibility Analysis

I. Systems Development Life Cycle (SDLC) Overview

The Systems Development Life Cycle (SDLC) is a structured process used in information systems development.
Key phases include:
- Planning: Defining the project and scope.
- Analysis: Understanding business needs.
- Design: Sculpting the system architecture.
- Implementation: Building and deploying the system.

II. Project Initiation: System Request

A system request is a formal document that describes the business reasons for building a system and the value it is expected to provide.
Elements of a System Request:
- Project Sponsor: The owner and primary point of contact for the project. This individual champions the project and ensures its alignment with business goals.
- Business Need: The fundamental reason prompting the project. It articulates the problem or opportunity that the new system will address.
- Business Requirements: The specific business capabilities the system will need to possess to meet the stated business need.
- Business Value: The quantifiable and qualitative benefits the organization can expect as a result of implementing the project. This encompasses the return on investment.
- Special Issues: Any other unique considerations or constraints that should be taken into account during the project's lifecycle.

III. Project Initiation: Feasibility Analysis

Feasibility analysis is a critical step that guides the organization in determining whether to proceed with a proposed project.
It identifies potential risks that must be carefully addressed if the project is approved to move forward.
Major Components of Feasibility Analysis:
- Technical Feasibility: Can we build the system?
- Economic Feasibility: Should we build the system? (Also known as cost-benefit analysis).
- Organizational Feasibility: If we build it, will stakeholders accept and use it?

A. Technical Feasibility

Definition: Technical feasibility assesses the extent to which the proposed system can be successfully designed, developed, and installed by the project team. It addresses the question: "Can we build it?"
Four Sources of Risks that Endanger Project Success:
- Familiarity with Functional Area: The project team's experience and understanding of the business domain (e.g., finance, marketing, human resources). Less familiarity generally generates more risk.
- Familiarity with Technology: The project team's experience with the specific hardware, software, and programming languages required for the system. Less familiarity generates more risk.
- Project Size: The overall scale of the project, including factors like the number of people involved, the number of features to be implemented, and the estimated time to complete. Larger projects inherently carry more risk.
- Compatibility with Existing Systems: The ease or difficulty of integrating the new system with current organizational systems, particularly concerning data formats and system interfaces. Difficult integration significantly increases risk.

B. Economic Feasibility (Cost-Benefit Analysis)

Definition: Economic feasibility, often referred to as a cost-benefit analysis, identifies and evaluates the financial risks associated with undertaking a project. It addresses the question: "Should we build it?"
Steps for Cost-Benefit Analysis:
1. Step 1: Identify Costs and Benefits
  - Costs and benefits are categorized into four main types:
    - Development Costs: Tangible expenses incurred exclusively during the creation phase of the system. Examples include:
      - Salaries for development team
      - Hardware and software expenditures
      - Consultant fees
      - Training for the development team
      - Office space and equipment utilized during development
      - Data conversion costs
      - Vendor installation
    - Operational Costs: Tangible ongoing costs required to operate and maintain the system after its deployment. Examples include:
      - Salaries for operational staff
      - Software licensing fees
      - Equipment upgrades (e.g., hardware upgrades)
      - Hardware repairs
      - Communications charges
      - User training
    - Tangible Benefits: Measurable revenues that the system enables the organization to collect or identifiable costs that the system helps the organization avoid. Examples include:
      - Increased sales
      - Reductions in staff (through improved efficiency)
      - Reductions in inventory costs
      - Reductions in IT costs
      - Better supplier prices
    - Intangible Benefits: Benefits that are more challenging to quantify with hard numerical values, often based on intuition, belief, or qualitative improvements. Examples include:
      - Increased customer satisfaction
      - Enhanced brand recognition
      - Increased market share
      - Higher quality products
      - Improved customer service
      - Better supplier relations
2. Step 2: Assign Values to Costs and Benefits
  - After identifying categories, specific dollar values must be assigned to each cost and benefit.
  - The most effective strategy is to consult with individuals who possess the best understanding of these elements.
    - Costs and benefits related to technology are typically estimated by the IT group.
    - Numbers related to business outcomes (e.g., sales projections, order levels) are provided by business users.
3. Step 3: Determine Cash Flow
  - A formal cost-benefit analysis typically projects costs and benefits over a selected number of years to illustrate cash flow over time.
  - This method often uses a spreadsheet format, listing years across the top and entering numeric values for all relevant costs and benefits in the body of the spreadsheet.
  - Amounts may be augmented by a rate of growth to adjust for inflation or anticipated business improvements.
  - Higher overall totals for benefits, especially when discounted to present value, indicate greater economic feasibility.
4. Step 4: Assess Project's Economic Value
  - This final step involves calculating key financial performance measures:
    - Return on Investment (ROI)
    - Break-Even Point
    - Net Present Value (NPV)
Financial Calculations Used for Cost-Benefit Analysis:
- Return on Investment (ROI):
  - Definition: A calculation that measures the average rate of return on the money invested in the project. A high ROI suggests that the project's benefits significantly outweigh its costs.
  - Formula: ext{ROI} = rac{ ext{Total benefits} - ext{Total costs}}{ ext{Total costs}}
- Break-Even Point:
  - Definition: Also known as the payback method, it is the number of years it takes a firm to recover its original investments in the project from net cash flows. A longer break-even period indicates a riskier project.
  - Illustrative Calculation (from example): Based on an example achieving positive cumulative NPV in year four, if the yearly NPV in year 4 is 450,019 and the cumulative NPV at the end of year 3 was (283,993), the break-even occurs in year 4. The 0.63 part of the year is calculated as rac{(450,019 - 166,026)}{450,019} = 0.63. This leads to a break-even point of approximately 3.63 years.
- Present Value (PV):
  - Concept: Used to discount future cash flows to their equivalent value in today's dollars.
  - Formula: ext{PV} = rac{ ext{Cash flow amount}}{(1 + ext{interest rate})^n} where n represents the number of years in the future.
- Net Present Value (NPV):
  - Definition: Compares the present value of all cash inflows (benefits) and cash outflows (costs) for the project in today's dollar terms. It is the difference between the total present value of benefits and the total present value of costs.
  - Condition for Feasibility: For a project to be considered economically feasible, its NPV must be greater than zero ( ext{NPV} > 0).
  - Formula: ext{NPV} = extstyle ig( extstyle ext{PV Benefits} - ext{PV Costs}ig)

C. Organizational Feasibility

Definition: Organizational feasibility assesses how well the proposed system will ultimately be accepted by its various stakeholders, both internal and external. It addresses the question: "If we build it, will they come?"
Stakeholder Analysis: This is a systematic process used in organizational feasibility to:
- Identify all parties (e.g., management, system users, shareholders, customers, suppliers) who will be affected by the new information system.
- Attempt to estimate and understand the potential consequences (positive and negative) of the project for each identified stakeholder group. This helps in anticipating and mitigating resistance to change.

IV. Feasibility Analysis Case Discussion: Scan & Go

The "Scan & Go" case serves as a practical example for discussing and applying the principles of Technical, Economic, and Organizational Feasibility in a real-world context.

V. Next Steps

The subsequent phase in the Systems Development Life Cycle following project initiation and feasibility analysis is Requirement Analysis, where detailed system requirements are gathered and documented.