Chapter 8
CHAPTER 8: SYSTEMS EVALUATION & SELECTION
1. Cost Benefits Analysis
It is the process of comparing the anticipated costs of an information system to its anticipated benefits.
2. Costs
- It can be classified as tangible, intangible, direct, indirect, fixed or variable
- Tangible Cost
Cost for which we can determine a specific ringgit value such as hardware and software purchases.
- Intangible Cost
Costs for which value cannot be accurately determined such as the cost of customer dissatisfaction, lowered employee morale, and reduced information availability.
- Direct Cost
Costs that are relatively constant and that do not depend on a level of activity such as direct labor cost.
- Indirect Cost
Also known as overhead expenses such as salaries of computer operators.
- Fixed Cost
Costs that are relatively constant and that do not depend on a level activity factory rental expenses.
- Variable Cost
Costs that vary in proportion to a level of activity costs of employee overtime wages.
3. Benefits
- Clouded by both tangible and intangible elements
- Tangible elements are those to which direct values can be attached e.g. purchase of equipment or cost of borrowing money.
- Intangible elements are those values that cannot be precisely determined and are results of subjective judgment such as:
Improved customer service, improved management information, more current information, better parts control, more efficient operations, better internal and external communications.
4. Feasibility Analysis
i. Technical Feasibility
Involves determining whether a proposed information system is possible given the current state of technology.
ii. Operational Feasibility
It is a function of human resources for the project. A projection of how the system will operate and how the users will accept it once it is installed. It covers two aspects, technical performance and acceptance within the organization.
iii. Economic Feasibility
Determining whether a proposed information system will yield benefits that exceed its costs.
iv. Schedule Feasibility
It is question if there is specific time deadline and if so can the system be operational before that deadline.
5. Accounting Techniques
i. Payback Analysis
o Refer to the length of time taken to recover the value of the initial investment of the systems project.
o Advantage: Many business establish a minimum payback period for projects to be undertaken.
ii. Return on Investment Analysis
o It is a percentage rate that measures the profitability by relating the estimates total net profits received from a project to the estimated total costs of the project.
o Critics: Only an average rate of return for the total period.
iii. Present Value Analysis
o Future ringgit amount of money that when invested today at some specified interest rate would grow to exactly one ringgit at that point in time in the future.
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