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113 lines
3.2 KiB
Markdown
113 lines
3.2 KiB
Markdown
---
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title: "25-cost-benefit-analysis"
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aliases:
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tags:
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- info201
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- lecture
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sr-due: 2022-06-15
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sr-interval: 3
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sr-ease: 270
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---
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# justifying a project
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- of difficult to prove justification
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- three criteria
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- need
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- funds
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- strong will
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## deciding whether to pursue a project
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- what the project address
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- a problem
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- opportunity
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- directive
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- time frame
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- overall priority
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- what options do you have
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## Case study
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## Feasability analysis
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- should we build it (organisational)
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- nature and strength of need
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- strategic alignment? overall priority?
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- stakeholder support? Champion?
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- e.g., (otago uni)
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- document management system - legislated
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- student management system - mission critical
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- hard to share multimedia (otago capture) - problem
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- online teaching - opportunity
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- can we bulid it (techinical)
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- complecity (higher complexity -> higher risk)
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- familiarity and expertise (low familiarity -> higher risk)
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- size (larger -> higher risk)
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- compatitibilty (with existing systems; less -> higher risk)
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- e.g., IBM police 90's failure
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- will it be worth it (economic)
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- costs and benefits
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- quantify costs and benefits
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- asses economic value
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- payback period
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- NPV
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- ROI
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- convers both "should" and "can" form financial perspective
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- can we afford it
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- will it provde financial benefit
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- are funds available
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- includes considerations of risk and uncertainty
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- may revisit due to uncertainty
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# costs and benefits
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## identify
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costs
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- development
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- salaries, pm costs, testing and qual control
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- operational
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- maintenance, licensing, servers, training,
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benefits
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- tangible
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- reduced customer service costs, more efficiet (saves staff costs), legal compliance
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- intangilble
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- security
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- market share
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- improved perception of company "cool", happier staff
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## quantify
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dollar values. usually estimates/guesse
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e.g.,
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- dev team salaries (assumes accurate estimate of required effort)
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- increased sales (how to predict)
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- improved customer satisfaction: how to assign dollar value
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- smarter student management system with better prerequisite, modelling: how to estimate benefit
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- these are tangible benefits, intangible benefits are harder
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## assess economic value
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- payback period - how long until accumulated benefits equal the cost
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- NPV: sum of costs and benefits , but future years discouted
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- 
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- ROI: what is the discounted benefit relative to the costs
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- 
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## Example: what is better
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- financial analysis isn't everything
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- possible reasons to ignore a financial analysis
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- organisational: ack of institutional will, or not aligned with strategy, or legislated requirement
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- technical
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- legal risk
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- reputational risk
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## Comparing methods
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- payback: ignores discounting; gives a *year*
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- NPV considers discounting, give *net benefit* in financial terms, but ignores time and amount invested
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- ROI considers discounting and amount invested, but ignored time period; gives a *percentage*
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