Why a feasibility study?
Objectives of a feasibility study:
Lecture 3, Part 1:
Feasibility Study
Faye Baron
CSC340, Summer 2006
When to do Feasibility Study?
Start examining feasibility early: when
performing problem analysis.
Determine whether detailed study and analysis are
worth while.
Thorough feasibility study is performed after software
requirements specification is written, before
proceeding any further with the project.
A project that is feasible at one point, may
not be feasible at a later point.
Feasibility should be reviewed throughout the project.
[WBDF04]
Campbell 2006 University of Toronto
To find out if an system development project can be
done:
...is it possible?
...is it justified?
To suggest possible alternative solutions.
To provide management with enough information to
know:
Whether the project can be done
Whether the final product will benefit its intended users
What the alternatives are (so that a selection can be made in
subsequent phases)
Whether there is a preferred alternative
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Content of a feasibility study
The present organizational system
Stakeholders, users, policies, functions, objectives,...
Problems with the present system
inconsistencies, inadequacies in functionality,
performance,
Goals and other requirements for the new
system
Which problem(s) need to be solved?
What would the stakeholders like to achieve?
Constraints
including nonfunctional requirements on the system
(preliminary pass)
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 Content of a feasibility study [2] Types of feasibility
Technical feasibility Schedule feasibility
Possible alternatives Is the project possible with current Is it possible to build a solution in time
Sticking with the current system is always an technology? to be useful:
How much technical risk is there? Any constraints on the schedule?
alternative Does the technology exist at all? Can these constraints be met?

Different business processes for solving the problems Is it available locally?

Can it be obtained?
Operational feasibility
Urgency of the problem and the
Different levels/types of computerization for the Will it be compatible with other systems? acceptability of any solution:
solutions Economic feasibility If the system is developed, will it be used?
Is the project possible, given resource Human and social issues
Advantages and disadvantages of the constraints? internal issues:
What benefits will result from the system? Available of human resources?
alternatives Both tangible and intangible benefits Potential labour objections?
Quantify them! Manager resistance?
Things to conclude: What are the development and operational
costs?
Organizational conflicts and policies?
external issues:
Feasibility of the project Are the benefits worth the costs? Social acceptability?
legal aspects and government
The preferred alternative. regulations?
[WBDF04]
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Technical Feasibility Schedule Feasibility

Is the proposed technology or solution practical?
Do we currently possess the necessary technology?
Do we possess the necessary technical skills?
Is relevant technology mature enough to be easily applied to
our problem?
What kinds of technology will we need?
Some organizations like to use state-of-the-art technology
but most prefer to use mature and proven technology.
Is the required technology available in house?
If the technology is available: does it have the capacity to handle
the solution?
If the technology is not available: can it be acquired?
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[WBDF04]
How long will it take to get the technical expertise?
We may have the technology, but that doesn't mean we have the
skills required to properly apply that technology.
Assess the schedule risk:
Given our technical expertise, are the project deadlines
reasonable?
If there are specific deadlines, are they mandatory or desirable?
If the deadlines are not mandatory, the analyst can propose several
alternative schedules.
What are the real constraints on project deadlines?
If the project overruns, what are the consequences?
Deliver a properly functioning information system two months late
or deliver an error-prone, useless information system on time?
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 Operational Feasibility Operational Feasibility: PIECES
The PIECES framework is useful for identifying operational
How do end-users and managers feel about problems to be solved, and their urgency.
the problem you identified?
Performance
the alternative solutions you are exploring? Is current throughput and response time adequate?
Information
You must evaluate: Do end users and managers get timely, pertinent, accurate and usefully
formatted information?
Not just whether a system can work
Economy
but also whether a system will work. Are services and capacity provided by the current system satisfactorily
capturing profits or reducing costs for the company?
Any solution might meet with resistance: Could there be a reduction in costs and/or an increase in benefits with a
different approach?
Does management support the project? Control
Are there effective controls to protect against fraud and to guarantee
How do the end users feel about their role in the new system? information accuracy and security?
Which users or managers may resist (or not use) the system? Efficiency
Does current system make good use of resources: people, time, flow of
How will the working environment of the end users change? forms,? Or are there delays and bottlenecks?
Can or will end users and management adapt to the change? Services
Are current services reliable? Are they flexible and expandable?
Easterbrook 2004 University of Toronto
[WBDF04] 9 Easterbrook [WBDF04]
See 2004 University
the course website for a moreofspecific
Toronto list of PIECES questions 10

Economic Feasibility Economic Feasibility: Costs

This section of the Feasibility Study addresses: Development costs (OTO) Operational costs (on-going)
Is the project justified (I.e. will benefits outweigh costs)? Development and purchasing System Maintenance:
Can the project be done, within given cost constraints? costs: hardware (repairs, lease,
What is the minimal cost to attain a certain system? Cost of development team supplies,...),
Which alternative offers the best return on investment? Consultant fees software (licenses and
How long until we get payback? software used (buy or build)? contracts),
hardware (what to buy, facilities
Often referred to as Cost-Benefit analysis buy/lease)? Personnel:
Examples of things to consider (for each alternative): facilities (site, For operation (data entry,
Hardware/software selection communications, power,...) backups,)
Selection among alternative financing arrangements Installation and conversion For support (user support,
(rent/lease/purchase) costs: hardware and software
installing the system, maintenance, supplies,)
Difficulties training personnel, manuals, On-going training costs
benefits and costs can be intangible, hidden or hard to estimate file conversion,....
in the very early stages of a project.
ranking multi-criteria alternatives

[WBDF04]
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 Example: Client-Server project
Personnel:
2 System Analysts (400 hours/ea $35.00/hr) $28,000
Economic Feasibility: Benefits
4 Programmer/Analysts (250 hours/ea $25.00/hr) $25,000
1 GUI Designer (200 hours/ea $35.00/hr) $7,000
1 Telecommunications Specialist (50 hours/ea $45.00/hr) $2,250
1 System Architect (100 hours/ea $45.00/hr) $4,500 Tangible Benefits Intangible benefits
1 Database Specialist (15 hours/ea $40.00/hr) $600
1 System Librarian (250 hours/ea $10.00/hr) $2,500
Readily quantified as $ Difficult to quantify
But maybe more
Expenses:
4 Smalltalk training registration ($3500.00/student) $14,000
values important!
business analysts help
New Hardware & Software: Examples: estimate $ values
1 Development Server (Pentium Pro class) $18,700 increased sales Examples:
1 Server Software (operating system, misc.) $1,500
1 DBMS server software $7,500 cost/error reductions increased flexibility of
7 DBMS Client software ($950.00 per client) $6,650
increased operation
Total Development Costs: $118,200 throughput/efficiency higher quality
increased margin on sales products/services
PROJECTED ANNUAL OPERATING COSTS better customer relations
Personnel:
more effective use of staff increased Goodwill
2 Programmer/Analysts (125 hours/ea $25.00/hr) $6,250 time improved staff morale
1 System Librarian (20 hours/ea $10.00/hr) $200

Expenses:
1 Maintenance Agreement for Pentium Pro Server $995
1 Maintenance Agreement for Server DBMS software $525
Preprinted forms (15,000/year @ .22/form) $3,300
[WBDF04] [WBDF04]
Total Projected Annual Costs: $11,270
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Economic Feasibility: Economic Feasibility:

Cost/Benefit Estimation Cost-Benefit Analysis
Software Cost Estimation continues to be the Identify costs and benefits
Tangible and intangible, one-time and recurring
weak link in software project management. Assign values to costs and benefits
[Agarwal et al, 2001] Determine Cash Flow
Project costs and benefits over time, e.g. 3-5 years
Assigning monetary values to costs and benefits Calculate Net Present Value for all future costs/benefits
Need to be able to compare them on the same scale determines future costs/benefits of the project in terms of today's
dollar values
Extremely challenging task A dollar earned today is worth more than a potential dollar earned
next year
Examples:
Increased efficiency in mail-order department
Do cost-benefit analysis
Calculate Break-Even point:
$125,000 (justification: 5 people at $25,000 per person)
how long will it take (in years) to pay back the accrued costs:
Increased earnings due to web presence Calculate Return on Investment:
$500,000 (justification: increasing at 50% per year) Allows comparison of lifetime profitability of alternative solutions.

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 Economic Feasibility: Economic Feasibility:
Calculating Present Value Net Present Value
Measures the total value of the investment
A dollar today is worth more than a dollar tomorrow
with all figures adjusted to present dollar values
Your analysis should be normalized to current year dollar values.
NPV = Cumulative PV of all benefits - Cumulative PV of all costs
The discount rate
measures opportunity cost: Cash Flow Year 0 Year 1 Year 2 Year 3 Year 4
Money invested in this project means money not available for other things Dev. Costs ($100,000)
Benefits expected in future years are more prone to risk Oper.Costs ($4,000) ($4,500) ($5,000) ($5,500)
Present Value 1 0.893 0.797 0.712 0.636
This number is company- and industry-specific. Time-adj Costs ($100,000) ($3,572) ($3,587) ($3,560) ($3,816)
what is the average annual return for investments in this industry? Cumulative Costs ($100,000) ($103,572) ($107,159) ($110,719) ($114,135)
Present Value:
The current year dollar value for costs/benefits n years into the future Benefits 0 $25,000 $30,000 $35,000 $50,000
for a given discount rate i
T-adj Benefits 0 $22,325 $23,910 $24,920 $31,800
Cumulative Benefits 0 $22,325 $46,235 $71,155 $102,955
1 Net Costs+Benefits ($100,000) ($81,243) ($60,924) ($39,564) ($11,580)
Present_Value(n) = (1 + i)n
E.g. if the discount rate is 12%, then
Assuming subsequent years are like year 4
Present_Value(1) = 1/(1 + 0.12)1 = 0.893
the net present value of this investment in the project will be:
Present_Value(2) = 1/(1 + 0.12)2 = 0.797
after 5 years, $13,652
[WBDF04] after 6 years, $36,168 [WBDF04]
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Economic Feasiblity:
Computing the payback period
Compute the break-even point:
when does lifetime benefits overtake lifetime costs?
Determine the fraction of a year when payback actually occurs:

| beginningYear amount |

endYear amount + | beginningYear amount |

For our last example, 51,611 / (70,501 + 51,611) = 0.42
Therefore, the payback period is 3.42 years (Clearly, it is absurd
to say that in exactly 3.42 years we will break even, and be held
to it. This is just a projected estimate.)

[WBDF04] [WBDF04]
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 Economic Feasibility:
Feasibility Study Contents
Return on Investment (ROI) 1. Purpose & scope of the study 5. Possible alternatives
For comparing overall profitability Objectives (of the study) including do nothing.
Which alternative is the best investment? who commissioned it & who did it, 6. Criteria for comparison
ROI measures the ratio of the value of an investment to its cost. sources of information, definition of the criteria
ROI is calculated as follows: process used for the study, 7. Analysis of alternatives
ROI = Estimated lifetime benefits - Estimated lifetime costs how long did it take, description of each alternative
Estimated lifetime costs 2. Description of present situation evaluation with respect to criteria
or: organizational setting, current cost/benefit analysis and special
ROI = Net Present value / Estimated lifetime costs system(s). implications.
For our example Related factors and constraints. 8. Recommendations
ROI = (795,440 - 488,692) / 488,692= 62.76%, 3. Problems and requirements what is recommended and
or ROI = 306,748 / 488,692 = 62.76% Whats wrong with the present implications
Solution with the highest ROI is the best alternative situation? what to do next;
But need to know payback period too to get the full picture What changes are needed? E.g. may recommend an interim
solution and a permanent solution
E.g. A lower ROI with earlier payback may be preferable in some circumstances 4. Objectives of the new system.
9. Appendices
Goals and relationships between
them to include any supporting material.
[WBDF04]
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Comparing Alternatives Candidate Systems Matrix

How do we compare alternatives?
When there are multiple selection criteria? Candidate 1 Name Candidate 2 Name Candidate 3 Name
When none of the alternatives is superior across the board? Description
Use a Candidate Systems Matrix! Operational
Feasibility
The columns correspond to the candidate solutions; Technical
The rows correspond to the feasibility criteria; Feasibility
The cells contain the feasibility assessment notes for each Schedule
candidate; Feasibility
Each row can be assigned a rank or score for each criterion Economic
Feasibility
e.g., for operational feasibility, candidates can be ranked 1, 2, 3, etc.
Ranking
A final ranking or score is recorded in the last row.
Other evaluation criteria to include in the matrix
quality of output, ease of use, vendor support, cost of maintenance,
load on system [WBDF04] [WBDF04]
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 [WBDF04] [WBDF04]
Feasibility Criteria Wt. Candidate 1 Candidate 2 Candidate 3 Candidate
Feasibility Criteria Wt. Candidate 1 Candidate 2 Candidate 3 Candidate
Operational Feasibility 30% Only supports Member Fully supports user Same as candidate 2.
Services requirements required functionality. Operational Feasibility 30% Score: 60 Score: 100 Score: 100
Functionality. Describes to and current business Technical Feasibility 30% Score: 50 Score: 95 Score: 60
what degree the alternative processes would have to
would benefit the organization be modified to take Economic Feasibility 30%
and how well the system would advantage of software
work. functionality Cost to develop: Approximately Approximately Approximately
Political. A description of how $350,000. $418,040. $400,000.
well received this solution Payback period
would be from both user (discounted): Approximately Approximately 3.5 Approximately 3.3
management, user, and
organization perspective. Score: 60 Score: 100 Score: 100 4.5 years. years. years.
Technical Feasibility 30% Current production Although current Although current
release of Platinum Plus technical staff has only technical staff is Net present value: Approximately Approximately Approximately
Technology. An assessment of package is version 1.0 Powerbuilder comfortable with
the maturity, availability (or and has only been on experience, the senior Powerbuilder, $210,000. $306,748. $325,500.
ability to acquire), and the market for 6 weeks. analysts who saw the management is
desirability of the computer Maturity of product is a MS Visual Basic concerned with recent Detailed calculations: See Attachment See Attachment A. See Attachment A.
technology needed to support risk and company demonstration and acquisition of
this candidate. charges an additional presentation, has Powerbuilder by A.
monthly fee for agreed the transition Sybase Inc.
Expertise. An assessment to technical support. will be simple and MS SQL Server is a Score: 60 Score: 85 Score: 90
the technical expertise needed finding experienced current company
to develop, operate, and Required to hire or train VB programmers will standard and competes Schedule Feasibility 10% Less than 3 9-12 months 9 months
maintain the candidate system. C++ expertise to be easier than finding with SYBASE in the months.
perform modifications Powerbuilder Client/Server DBMS
for integration programmers and at a market. Because of
An assessment of how
requirements. much cheaper cost. this we have no long the solution will
guarantee future take to design and Score: 80 Score: 85
MS Visual Basic 5.0 is versions of
a mature technology Powerbuilder will
implement. Score: 95
based on version play well with our Ranking 100% 60.5 92 83.5
number. current version SQL
Server.

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Score: 50 Score: 95 Score: 60

References
[WBDF04] Whitten, J. L., Bentley, L. D. and Dittman, K.
2004. Systems Analysis and Design Methods.
McGraw-Hill: Boston, MA.
[SJD05] Satzinger, J.W., Jackson, R. B., and Burd, S.
D. 2005. Object-Oriented Analysis and
Design with the Unified Process. Thomson:
Boston, MA.

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