Preparing the System Proposal - No Slide Title.ppt by suchufp

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									            Chapter 13




Topics:
  – Systems proposal
  – Determining hardware needs
  – Determining software needs
  – Decision to rent, lease, or buy
  – Tangible and intangible costs and benefits
  – Methods for selecting alternatives




                               Preparing the System Proposal
Systems Proposal


    • In order to prepare the systems proposal
      analysts must use a systematic approach to
      identify hardware and software needs
       –   Ascertaining hardware and software needs
       –   Identifying and forecasting costs and benefits
       –   Comparing costs and benefits
       –   Choosing the most appropriate alternative




                                            Preparing the System Proposal
Steps to Ascertain Hardware and Software Needs


           • Inventory computer hardware currently available
           • Estimate current and projected workload for the
             system
           • Evaluate the performance of hardware and
             software using some predetermined criteria
           • Choose the vendor according to the evaluation
           • Obtain hardware and software from the vendor




                                                 Preparing the System Proposal
Steps to Ascertain Hardware and Software Needs




                                                 Preparing the System Proposal
Hardware Inventory Check




       – Type of equipment: model no.,
         manufacturer
       – Status of equipment operation
       – Estimated age of equipment
       – Physical location of equipment
       – Department or person responsible for
         equipment




                                    Preparing the System Proposal
Criteria for Evaluating Hardware




    • Time required for average transactions
      (including time for input and output)
    • Total volume capacity of the system
    • Idle time of the central processing unit
    • Size of memory provided




                                   Preparing the System Proposal
People that Evaluate Hardware




        – Management
        – Users
        – Systems analysts




                                Preparing the System Proposal
Three Options for Obtaining Computer
Equipment




        – Buying
        – Leasing
        – Rental




                                       Preparing the System Proposal
Buying



         Advantages             Disadvantages
         Cheaper than leasing   Initial cost is high
         or renting over the
         long run
         Ability to change      Risk of obsolescence
         system
         Provides tax           Risk of being stuck if
         advantages of          choice is wrong
         accelerated
         depreciation
         Full control           Full responsibility




                                                Preparing the System Proposal
Leasing




          Advantages              Disadvantages
          No capital is tied up   Company doesn’t own
                                  the system when lease
                                  expires
          No financing is         Usually a heavy penalty
          required                for terminating the
                                  lease
          Leases are lower than   Leases are more
          rental payments         expensive than buying




                                           Preparing the System Proposal
Renting



     Advantages                 Disadvantages

     No capital is tied up      Company doesn’t own
                                the computer
     No financing is required

     Easy to change systems Cost is very high
                            because vendor assumes
     Maintenance and        the risk (most expensive
     insurance are usually  option)
     included


                                       Preparing the System Proposal
Evaluation of Vendor Support for Hardware



     • Hardware support
         – full line of hardware, quality products, warranty
     • Software support
         – complete software needs, custom programming, warranty
     • Installation and training support
         – commitment to schedule, in-house training, technical
            assistance
     • Maintenance support
         – routine maintenance procedures, specified response time
           in emergencies, equipment loan while repair is being done




                                                   Preparing the System Proposal
Guideline for Evaluating Software


     – Performance effectiveness – perform all required and
         desired tasks, well-designed display screens, adequate
         capacity
     –   Performance efficiency – fast response time, efficient
         input, output, storage of data and backup
     –   Ease of use – satisfactory user interface, help menu,
         ReadMe files, flexible interface, adequate feedback,
         good error recovery
     –   Flexibility – options for input and output, usable with
         other software
     –   Quality of documentation – good organization, adequate
         online tutorial, Web site with FAQ
     –   Manufacturer support – tech support hot line,
         newsletter/email, downloadable product updates
                                            Preparing the System Proposal
Costs and Benefits
Analysis


    • Systems analysts should take tangible
      costs, intangible costs, tangible benefits,
      and intangible benefits into consideration
      to identify cost and benefits of a
      prospective system




                                  Preparing the System Proposal
Tangible Costs


    • Tangible costs are those that can be
      accurately projected by systems analysts
      and the business' accounting personnel
    • Examples:
        – Cost of equipment
        – Cost of resources
        – Cost of systems analysts' time




                                     Preparing the System Proposal
Intangible Costs



    • Intangible costs are those that are
      difficult to estimate, and may not be
      known
    • Examples:
        – Cost of losing a competitive edge
        – Declining company image




                                     Preparing the System Proposal
Tangible Benefits



    • Tangible benefits are advantages
      measurable in dollars that accrue to the
      organization through use of the
      information system
    • Examples:
        – Increase in the speed of processing
        – Access to information on a more timely basis




                                     Preparing the System Proposal
Intangible Benefits



    • Intangible benefits are advantages from
      use of the information system that are
      difficult to measure
    • Examples:
         – Improved effectiveness of decision-making
           processes
         – Maintaining a good business image




                                     Preparing the System Proposal
Selecting the Best Alternative



    • To select the best alternative, analysts
      should compare costs and benefits of the
      prospective alternatives using
        – Break-even analysis
        – Payback
        – Cash-flow analysis
        – Present value method




                                 Preparing the System Proposal
Break-Even Analysis



    • Break-even analysis is the point at which
      the cost of the current system and the
      proposed system intersect
    • Break-even analysis is useful when a
      business is growing and volume is a key
      variable in costs




                                 Preparing the System Proposal
Break-Even Analysis




                      Preparing the System Proposal
Payback Period
(PBP)

   • Payback determines the number of years of
     operation that the system needs to pay back
     the cost of investing in it
   • Payback is determined in one of two ways:
      – By increasing revenues
      – By increasing savings
   • If the PBP of a project is 6 years and the
     project can exist 3 years in the fast technology
     change situation—it should be rejected.




                                    Preparing the System Proposal
How to determine
PBP

   • PAY BACK PERIOD (PBP)
     Investment:                             $ 20,000
     Amount Recovered in 2002:               $ 7,312
     Remaining Investment to be recovered:    $12,668
     Amount Recovered in 2003:                   $ 7,768
     Remaining Investment to be recovered:    $ 4,920

      Part of 2004 Needed : 4,920/7352= 0.67
     (Assuming that Amount Recovered in 2004 is $7352)

     PBP = 1 + 1 + 0.67 = 2.67 YEARS




                                             Preparing the System Proposal
Payback Period




                 Preparing the System Proposal
Three Drawbacks of the Payback Method


       – It is strictly a short-term approach to
         investment and replacement decision
       – It does not consider the importance of how
         repayments are timed
       – It does not consider total returns from the
         proposed systems project that may go well
         beyond the payback year




                                        Preparing the System Proposal
Cash-Flow Analysis



    • Cash-flow analysis is used to examine
      the direction, size, and pattern of cash
      flow associated with the proposed
      information system
    • Determines when a company will
      begin to make profit
    • Determine when cash outlays and
      revenues will made up for initial
      investment


                                 Preparing the System Proposal
Cash-Flow Analysis




                     Preparing the System Proposal
Present Value Method



    • Assess all the economic outlays and
      revenues of the information system over
      its economic life and to compare costs
      today with future costs and today's
      benefits with future benefits
    • Use present value when the payback
      period is long, or when the cost of
      borrowing money is high


                                Preparing the System Proposal
Present Value Method




                 Without considering present value




                       Considering present value

                                                   Preparing the System Proposal
Guidelines for Selecting the Best Alternative


         – Use break-even analysis if the project needs to be
           justified in terms of cost, not benefits or if benefits
           do not substantially improve with the proposed
           system.

         – Use payback when the improved tangible benefits
           form a convincing argument for the proposed
           system.

         – Use cash-flow analysis when the project is
           expensive relative to the size of the company.

         – Use present value when the payback period is
           long.
                                                Preparing the System Proposal

								
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