EOC Questions Chapter 2

CHAPTER 2

PROJECT IDENTIFICATION AND SELECTION

1. Give three examples of business needs for a system.

a) Maintain or improve the competitive position

b) Perform a business function more efficiently
c) Take advantage of a new business opportunity

2. What is the purpose of an approval committee? Who is usually on this

committee?

The approval committee generally serves as the decision making body regarding
business investments in information systems projects. This approval committee could
be a company steering committee that meets regularly to make information systems
decisions, a senior executive who has control of organizational resources, or any other
decision-making body that governs the use of business investments.

This committee generally has a broad organizational representation, and therefore can
avoid allocating resources that will serve only narrow organizational interests. The
approval committee commonly has project oversight responsibilities as well as
monitoring project performance after the project has been accepted.

3. Why should the system request be created by a businessperson as opposed to an

IS professional?

It is important to have a clear understanding of how system will improve business.

Companies have now realized that identifying business value and understanding the
risks associated with the project are necessary to avoid any potential risks involved.
Usually the system originates with a businessperson as he understands the need for
the system or system improvement in the business unit and will have a much better
idea of the value of the proposed system or improvement and therefore is in a better
position to create a meaningful system request

In fact, the ideal situation is for both IT people (i.e., the experts in systems) and the
business people (i.e., the experts in business) to work closely to find ways for
technology to support business needs. In this way, organizations can leverage the
exciting technologies that are available while ensuring that projects are based upon
real business objectives, such as increasing sales, improving customer service, and
decreasing operating expenses.

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4. What is the difference between intangible value and tangible value? Give three
examples of each.

Tangible Value: Tangible value can be quantified and measured easily. Tangible
value represents the benefits from the systems that are quantifiable and measurable.
Example: (a) increased sales (b) reduced operating costs (c) reduced interest costs
etc…

Intangible Value: An intangible value results from an intuitive belief that the system
provides important, but hard-to-measure benefits to the organization. Intangible value
represents benefits that are real, but are difficult to quantify and measure.

Example: (a) increased customer satisfaction (b) improved decision making (c) better
competitive positioning, etc.

5. What are the purposes of the system request and the feasibility analysis? How
are they used in the project selection process?

The purpose of the system request is to initiate a systems project. A system request is
a document that describes the business reasons for building a system and the value
that the system is expected to provide.

The project sponsor usually completes this form as part of a formal system project
selection process within the organization. Most system requests include five
elements: project sponsor, business need, business requirements, business value, and
special issues

The feasibility analysis represents a more detailed investigation into the proposed
system outlined in the system request. Feasibility analysis guides the organization in
determining whether to proceed with a project. Feasibility analysis also identifies the
important risks associated with the project that must be addressed if the project is
approved.

The system analyst and the project sponsor work together to more fully develop the
objectives of the system and to understand its potential costs and benefits to the
organization.

The system request and the feasibility analysis are the key inputs used by the approval
committee in determining if the proposed system has enough merit to move into the
Analysis Phase.

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6. Describe two special issues that may be important to list on a system request.

Environmental factors should be considered (e.g., new governmental reporting

requirements); competitive factors (e.g., IS-enabled systems introduced or anticipated
by competitors); externally imposed deadlines that cannot be altered (e.g., completion
by the start of the next fiscal year); and mandated technologies (e.g., including
wireless access).

7. Describe the three techniques for feasibility analysis.

Every organization has its own process and format for the feasibility analysis, but
most include three techniques:

a. Technical feasibility: Technical feasibility looks at the capability of the

organization to successfully develop the proposed system. Included in this
assessment is the project size, the types of technologies to be used in the project,
and the amount of prior experience with that technology and the business
application.

b. Economic feasibility: Economic feasibility addresses the economic justification

of the project. Here, we attempt to determine if the value of the project's benefits
justifies investing in the project's estimated costs.

c. Organizational feasibility: Organizational feasibility evaluates whether the

system is likely to be accepted and used by the organization. Included in this
assessment will be the strength of the sponsor's and management's support for the
project and the enthusiasm or resistance of the users for the project.

8. What factors are use to determine project size?

There are a few factors that can be used to determine project size including: the
number of people on the project team, the expected time to complete the project, the
breadth/scope of the project, the number of distinct features that will be included in
the system, and the degree of integration required between the new system and
existing systems.

9. Describe a “risky” project in terms of technical feasibility. Describe a project

that would not be considered “risky.”

A project that would be technically risky would be one that is large in scale, utilizes
technology that we have little or no experience with, and is for a business area that is
new and unfamiliar to the organization.

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A project that would not be considered technically risky would be one that is small in
scale, uses technology that is well understood, and is for a business area that is very
familiar to the users and developers.

10. What are the steps for assessing economic feasibility? Describe each step.

The four steps for assessing economic feasibility are:

a. Identify costs and benefits of the proposed system.
b. Assign values to the costs and benefits.
c. Determine the cash flow of the project over the analysis period.
d. Determine the project's investment return.

11. List two intangible benefits. Describe how these benefits can be quantified.

a. One example of an intangible benefit is reduced response time to customer

requests. Estimating the increase in the number of customers that could be served
and the average revenue gained per customer could approximate the value of this
benefit. So, if we currently have 1000 customers, the average revenue per
customer is $100, and by reducing our response time we can increase the number
of customers served by 30%, then our benefit will be $30,000 (300 add'l
customers @ $100). (Note: this analysis assumes that demand for the product
will increase with our increased capacity. If demand remains constant, however,
reduced response time will allow us to save money due to less frequent overtime;
allow for greater flexibility in absorbing urgent projects; or create other similar
value, though the economic impact of these may be more difficult to estimate).

b. A second example of an intangible benefit is improved customer satisfaction.

Determining how much repeat business we lose from dissatisfied customers could
approximate the value of this benefit. The amount of repeat business lost could be
estimated through customer satisfaction surveys or marketing research. Assume
we currently have 1000 customers, each customer brings in average revenue of
$100, and we currently lose the repeat business of 10% of our customers due to
dissatisfaction. If an improvement in customer satisfaction resulted in losing only
5% of repeat business, then the value of that benefit would be $5,000 (50
customers retained @$100).

12. List two tangible benefits and two operational costs for a system. How would you
determine the values that should be assigned to each item?

Two tangible benefits are: an increase in sales and a decrease in uncollectible

accounts receivable. The best way to measure these benefits is to go to the business
people who understand these areas and ask them for reasonable estimates. The sales
and marketing managers and the accounts receivable managers will be in the best
position to determine these values.

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Operational costs are the ongoing costs associated with the new system, and are fairly
easy to determine objectively. One common operational cost is that of maintenance
agreements for new hardware, which can be determined by contacting hardware
vendors about the costs of their maintenance contracts. Another common operations
cost is that of new employees that will be needed to run the new system. Salaries and
benefits for new employees can be determined by checking local and regional salary
and wage surveys for the type of employee needed.

13. Explain the net present value and return on investment for a cost–benefit
analysis.
Why would these calculations be used?

Net Present Value: The net present value (NPV) method compares the present values
of the project's cash inflows and outflows. If the present value of the benefits
(inflows) is equal to or greater than the present value of the costs (outflows), then the
project is considered economically justifiable. NPV has the advantage of including a
required rate of return in the calculation, so the NPV figure captures the costs
associated with tying up money in the project. NPV also explicitly considers the
timing of the cash flows throughout the system life.

Return on Investment: The return on investment (ROI) method simply compares the
total net cash flows from the project with the total outflows in aggregate. While this
ROI number gives some sense of how much money the project generates in
comparison to its total cost, it omits any consideration of the timing of the cash flows
and the time value of money. The ROI method, while simple to compute, is flawed in
many ways and should not be used as the only economic indicator of a project's merit.

14. What is the break-even point for the project? How is it calculated?

Break-even point is defined as the point in time at which the costs of the project equal
the value it has delivered. It is determined by looking at the cash flow over time and
identifying the year in which the benefits are greater than the costs.

In a project situation, if the project team needs to perform a rigorous cost–benefit

analysis, they need to include information about the length of time before the project
will break-even, or when the returns will match the amount invested in the project.
The greater the time it takes to break-even, the riskier the project.

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15. What is stakeholder analysis? Discuss three stakeholders that would be relevant
for most projects.

Stakeholder analysis is a systematic process that identifies all parties that will be
affected by a new information system, and attempts to estimate the consequences of
the project for each stakeholder group. A major goal of stakeholder analysis is to
ensure that the consequences of a new system are considered for all parties that will
be affected by the system.

The most common stakeholders to consider for most systems projects are:

a. The system champion: The system champion is the person or group who
initiates the project and provides support for it.
b. The system users: The users are the individuals who will work with the
system once it is implemented.
c. The organization's management: The organization management commits
resources to the project and has an interest in seeing those resources be used to
improve the functioning of the organization.

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