quartz/content/notes/25-cost-benefit-analysis.md

title	aliases	tags	sr-due	sr-interval	sr-ease
25-cost-benefit-analysis		info201 lecture	2022-06-15	3	270

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

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
  • 
  • 
• ROI: what is the discounted benefit relative to the costs
  • 
  • 

Example: what is better

• 
• financial analysis isn't everything
• possible reasons to ignore a financial analysis
  • organisational: ack of institutional will, or not aligned with strategy, or legislated requirement
  • technical
  • legal risk
  • reputational risk

Comparing methods

• payback: ignores discounting; gives a year
• NPV considers discounting, give net benefit in financial terms, but ignores time and amount invested
• ROI considers discounting and amount invested, but ignored time period; gives a percentage