Information Systems Project - Example

Cost-benefit report for information systems project University name Student name Student id Course Date Table of Contents Description of the project 3 Alternatives 4 Objectives 5 Cost estimation 5 Estimation technique 6 Economic analysis 6 Financial analysis versus economic analysis 7 Cost-benefit analysis 7 Sources of data for costing 9 Valuation methods 9 Net present value 9 Technical analysis 10 Operational analysis 11 The project structure 11 References 12 Appendix 14 Description of the project The project is looking for ways of improving the performance of organizations by employing the use of technology in operations. The information technology use has been very crucial in the improvement of the quality of services and products of a company. Besides, the decision making can be improved by the use of information technology as the necessary information is availed for decision making. The information system has become crucial in the management of organizations with an aim of improving the performance of organizations. The project is considered essential considering the increase in competition that has been making many organizations look for ways of becoming competitive in the market (Pressman, 2005). The use of technology in the operations has been one of the primary ways a company can use in the process of becoming competitive. Therefore, the projects are looking for the benefits that can be associated with the use of information technology in achieving competitive advantages in the market. The use of information systems can assist in managing the costs of operations by ensuring that the operations are efficient. The efficiency of the information system has been making many organizations use information systems in their operations to ensure that the costs of running the organization are controlled. For instance, organizations are using information technology in the process of coming up with competitive strategies in the market. The information systems are used to enhance the quality of the strategies formulated that can ensure that the products of the company are competitive. Through the use of information technology, many organizations have become very innovative through the differentiation strategies that have been relying on information technology. Differentiating products have been essential in eliminating the increased chances of substituting products (Chen, 1996). The project is aimed at establishing benefits of using information systems in the management of an organization. The costs benefit analysis of the project is crucial in making decisions concerning the adoption the information systems in operations of organizations. The choice of the project entirely depends on the advantages associated with the project. The project does assist in establishing the feasibility of employing the use of information systems in operations of an organization. The feasibility determines the benefits that can be derived from the project hence determining whether there is the need to adopt the system depending on the results of the cost-benefit analysis. A feasible project is the one that can ensure long-term achievement of the goals of an organization with an excellent cash flow while able to encounter the potential risks (Pressman, 2005). The project is involving an expansion of a business hence the information systems project is being used to determine whether it can assist the organization in achieving competitive advantages in the market. Alternatives There are other alternative IT projects that organization can invest in to achieve competitive advantages in the market. Such information technology projects can include ERP system, e-commerce, and software development among other technology based projects. However, the limitation of resources and time makes an organization to choose a project that can ensure efficiency in its operations (Rubinstein, 1997). Besides, the management of an organization needs to consider the economic and business goals of the organization before starting a project. Objectives 1. To enhance the service delivery in organizations aiming at achieving competitive advantages by offering quality services and products. 2. To improve the efficiency of operations by managing the costs of operating through the use of information technology in operations. Cost estimation Various variables need to be considered in the process of estimating the costs of the project. These variables can include labor costs, requirements, resources available, risks, materials, and time. It is also important to consider the changes that are likely to take place in the future. The unexpected future changes need to be accommodated by adjusting the activities of the project to suit the changes. The changes are likely to affect the outcome of the project hence improving the activities of the project to meet the specifications of the project is essential (Demirhan et al. 2006). Therefore, making accurate estimates while considering the possible future changes is crucial to the success of the information system project. Underestimating the costs of the project can cause challenges in the process of managing the project. The underestimations can result in failure to meet the project requirements and lead to the inadequacy of funds, time, materials, and infrastructure. Therefore, there is the need to ensure that the project does not underestimation to make sure that it is successful. In the process of ensuring that the project is successful using proper estimation method is crucial (Pressman, 2005). In this project fair estimates method of evaluations has proved to be helpful in assisting in ensuring that the estimates are done accurately. Fair estimates are the best method of estimation, as the deviation from the actual value is very small. The estimation made in this project is 25 to 50 percent far from the actual value. I have used this evaluation method, as I am familiar with the information system project for I have done many such projects before. Estimation technique The estimate of the costs involved breaking the project into various tasks that need to be accomplished. This assisted in making the estimation made easier and much accurate. The evaluation of the tasks was done based on size and the complexity of the work involved. For instance, the less complex which included loading the database (Hofstrand and Holz-Clause, 2006). Time was then allocated depending on the complexity of the task assisting in meeting the project requirement due to a timely manner management. The tasks were then assigned the people who could do the task better making the project stand high chances of ensuring quality work. The technique that proved to be important in accomplishing this project is the bottom-up approach. The costs of the project were obtained by accumulating the estimates of the expenses from those responsible for different components (Demirhan et al. 2006). The estimation involved breaking down the task into smaller parts to enhance the accuracy of estimation then adding the estimated costs together. The cost estimate for the tasks involved expert judgment where software developers were consulted in the process of giving the evaluations of the expenses. Economic analysis Economic evaluation is crucial in assessing the viability of the project. It entails measured, compared, and quantified in monetary form. The economic evaluation is being considered critical in making investment decisions as many organizations are focusing on the project that is beneficial financially. The right project can only be undertaken after a proper economic evaluation to assure the success of the project. Project investments entail capital funds expenditure and the resources that can ensure generation of the future benefits. The future benefits can either be in the form of cost savings, social benefits, or even profits (Chen, 1996). The future benefits need to be compared with the expenditure required in the course of developing the project to achieve the desired future benefits. Financial analysis versus economic analysis The financial analysis entails assessing the cost, income, cash flow and the possible profits. It assists in estimating the financial effects of the project being in an organization. The economic analysis involves measuring the impact of the project considering the resources used in the development of the project as the benefits that are likely to be derived in the future. Financial analysis and economic analysis are critical in determining the investment decisions where an organization can then rely on the results of the analysis to decide whether to adopt the use of information systems in the operations (Demirhan et al. 2006). A project can have non-financial benefits to an organization such as welfare gains. Therefore, assessing the viability of a project need not only to consider the financial benefits but also consider the non-financial advantages of the project. Cost-benefit analysis Assessing the economic feasibility of a project, both the benefits, and the costs need to be analyzed to determine the economic viability of the project. The capital costs that are associated with the information systems project do affect the evaluation of the project economically. Estimating the costs assist in predicting the final capital expenditure of the project (Cohan, 2005). However, it is not possible to come up with the actual costs and benefits of the project because the costs and the benefits are calculated using estimations. Therefore, it is essential to ensure that enough time is take in the process of doing the estimations. Spending some time before the start of a project is important to ensure that the estimates are done properly to assist in budgeting the project. The costs that are associated with information system project can involve tangible costs that can be easily determined and estimated. The tangible costs associated with the information systems project can include labor costs, software and hardware costs. However, other expenses are intangible hat can be involved in the project such as inefficiency of operations, and loss of goodwill. Choosing the right method of estimation the expenses of the project is then essential to ensure that the costs associated with the project can easily be determined (Pressman, 2005). Proper determination of the expenses of the projects is crucial in comparing the future benefits of the project with the expenditure of the project hence making the decision whether to process with the project or not. Various benefits can be associated with the project to an organization. These advantages accumulating to the organizations using information systems can both be intangible and tangible. The tangible benefits that an organization can realize from the use of information system can include saving costs of operations, increasing the revenue and improved quality (Chen, 1996). The tangible benefits are easy to do estimations, but the intangible benefits cannot be easily quantified. The intangible benefits can include making the company competitive in the market, increasing the demand due to improved quality, enhancing the reputation of the Company, enhancing service delivery, eliminating errors associated with human labor, and improving the effectiveness of the operations among many other benefits. Sources of data for costing Data concerning the costs of the project were obtained from two sources that include market prices and labor market statistics. Market prices were used where there was no data available to be employed in the estimations of the costs (Demirhan et al. 2006). The statistics showing various labor costs has formed an important source of data in the process of estimating the labor costs. However, opinions of the experts were also used in calculating some costs of the project. Valuation methods The project in the process of assessing the viability it used two approaches for valuation that include NPV and IRR. Net present value The calculation of the net present value entails adding the values of cash flow. The costs of the project were estimated to be around $42,500 that involved one-time investment for user training, developing and updating hardware. However, the project needs $28,500 annually for maintaining software, supplies, and communications costs. The project is expected to have returns of around $50,000 annually with the rate of return being 12%. Year 0 1 2 3 4 5 Economic benefit $50,000 $50,000 $50,000 $50,000 $50,000 Net cost ($42,500) ($28,500) ($28,500) ($28,500) ($28,500) ($28,500) Net cash flow ($42,500) $21,500 $21,500 $21,500 $21,500 $21,500 After I had determined the benefits and the costs of the information system project, I evaluated the viability of the project using both IRR, break even analysis and NPV. The net present value is $35,000. The project can proceed its implementation as the NPV is more than 0. The internal rate of return is 41.70%. Therefore, considering that the IRR is above 12%. This valuation shows that the project is viable as the benefits are more that the expenditure associated with the projects. Technical analysis Technical analysis is essential in evaluating the project to know whether the system can be in a position to adequately performance and achieve the requirements. Technical assessment is critical in determining whether the necessary technology does exist to support the use of the information system. Also, technical evaluation identifies the challenges that might face the system and whether there is enough experience among the employees using the systems. The system is assessed to ensure that it can meet the needs of the company (Jaffe, 1967). Technical assessment is mainly aimed at establishing the areas that might need upgrading how the system is compatible with the operations of the company. Current technology needs to adopt in the information system where technology needs to be used in making the activities of the organization efficient. Considering the compatibility of the system with the operations of an organization is crucial. The requirements of the project are usually given at the start of the project where the customer expectations the developer of the system to adhere to the requirements (Cohan, 2005). The requirements of the system need to be followed during the development to ensure that the system developed can be in a position to achieve the set objectives. Adhering to the specifications of the system determines whether the system can realize the goals of the organization. The development of information system needs a thorough investigation of the technology requirement. Considering the needed technology assists in ensuring competitiveness and reliability of the information system developed. The functionality of the system developed can be improved by identifying the potential constraints or limitations facing technology use in the organization. Determining the technological challenge assist in adopting the best technology that can help the organization to achieve the set goals (Cohan, 2005). The risk of the functionality of information system entirely depends on the complexity, experience of the employees and the system size. Operational analysis The analysis of the operations of the organization is necessary for the process of understanding the way the information system can be made compatible with the operations of the company. Besides, the understanding of the processes can assist in solving the problems facing an organization such as inefficiencies hence utilizing the opportunities availed by the use of the information systems. The operational analysis is essential in determining the work procedures and practices that can support the functional of the system proposed (Chen, 1996). Communicating possible changes in the operations of the organization can be crucial to ensure proper implementation of the proposed modifications in the organization. The project structure The structure of the project is well defined hence assisting in lowering the risks associated with the implementation of new information system in organizations. Therefore, the project is less risky hence implementation of the system can be of advantage to the operations of the organization (Rubinstein, 1997). Considering the evaluations and the analysis of the project, the system information is a viable project. This is because on the values of the internal rate of return and net present value. References Chen, M.T., 1996, “Simplified project economic evaluation.” Transactions of AACE International. ABI/INFORM Global. Cohan, P.S., 2005, “CFOs to Tech: ‘I’ll Spend For. The Right Technology’.” Financial Executive Apr 2005. ABI/INFORM Global. Demirhan, D.,   Jacob, V.S., and Raghunathan, S., 2006, “Information Technology Investment Strategies Under Declining Technology Cost.” Journal of Management Information Systems.  Vol. 22 No. 3, Winter 2006. pp. 321 – 350 Hofstrand, D., and Holz-Clause, M., 2006, “What is a Feasibilty Study?” Ag Decision Maker. File C5-65. Jaffe, J., 1967, "The Systems Design Phase", in Perry E. Rosove(ed.), Developing Computer-Based Information Systems, J Wiley. Pressman, R. S., (2005), Software Engineering, 6th ed. New York: McGraw-Hill. Rubinstein, E., (1997), “Study: Information technology a strategic asset.” Nation’s Restaurant News; Nov 3, 1997; ABI/INFORM Global Appendix Read More