---
title: "25-cost-benefit-analysis"
aliases: 
tags: 
- info201
- lecture
---

# justifying a project
- of difficult to prove justification
- three criteria
	- need
	- funds
	- strong will

# deciding whether to pursue a project
- what the project address
	- a problem
	- opportunity
	- directive
- time frame
- overall priority
- what options do you have

# Case study
![library web system](https://i.imgur.com/KXOOiQ9.png)

# Feasability analysis
- should we build it (organisational)
	- nature and strength of need
	- strategic alignment? overall priority?
	- stakeholder support? Champion?
	- e.g., (otago uni)
		- document management system - legislated
		- student management system - mission critical
		- hard to share multimedia (otago capture) - problem
		- online teaching - opportunity
- can we bulid it (techinical)
	- complecity (higher complexity -> higher risk)
	- familiarity and expertise (low familiarity -> higher risk)
	- size (larger -> higher risk)
	- compatitibilty (with existing systems; less -> higher risk)
	- e.g., IBM police 90's failure
- will it be worth it (economic)
	- costs and benefits
	- quantify costs and benefits
	- asses economic value
		- payback period
		- NPV
		- ROI
	- convers both "should" and "can" form financial perspective
		- can we afford it
		- will it provde financial benefit
		- are funds available
- includes considerations of risk and uncertainty
- may revisit due to uncertainty

# costs and benefits
## identify
costs
- development
	- salaries, pm costs, testing and qual control
- operational
	- maintenance, licensing, servers, training, 

benefits
- tangible
	- reduced customer service costs, more efficiet (saves staff costs), legal compliance
- intangilble
	- security
	- market share
	- improved perception of company "cool", happier staff

# quantify
dollar values. usually estimates/guesse

e.g.,
- dev team salaries (assumes accurate estimate of required effort)
- increased sales (how to predict)
- improved customer satisfaction: how to assign dollar value
- smarter student management system with better prerequisite, modelling: how to estimate benefit
- these are tangible benefits, intangible benefits are harder

# assess economic value
- payback period - how long until accumulated benefits equal the cost  
- NPV: sum of costs and benefits , but future years discouted
	- ![example](https://i.imgur.com/W6lhzKb.png)
- ROI: what is the discounted benefit relative to the costs
-