Initiating and Planning Initiating and Planning Systems Development Systems Development ProjectsProjects

Contemplative Contemplative QuestionsQuestions What deliverables are produced in early What deliverables are produced in early

stages of a project?stages of a project? What is the scope of this project? What What is the scope of this project? What

should the scope beshould the scope be?? If I were a If I were a member of the steering committee member of the steering committee

or an investoror an investor… would I invest in this project? … would I invest in this project? If I were a If I were a project managerproject manager… would I stake my … would I stake my

reputation on this project? Is it feasible?reputation on this project? Is it feasible? If I were an If I were an analystanalyst… what is the problem … what is the problem

being solved here? Is this being solved here? Is this really really the problem, the problem, or just a symptom? What is the or just a symptom? What is the realreal problem problem the proposed system is trying to address?the proposed system is trying to address?

Initiation vs. PlanningInitiation vs. Planning

For any For any singlesingle project… project…– When is it initiated?When is it initiated?– When does planning start?When does planning start?

““Formal” Project InitiationFormal” Project Initiation– A project team is established.A project team is established.– The project is given a number for tracking The project is given a number for tracking

purposes.purposes.– The project may be given a name.The project may be given a name.– A relationship with a customer may be developed, A relationship with a customer may be developed,

or an existing relationship may continue.or an existing relationship may continue. ““Formal” Project Initiation PlanFormal” Project Initiation Plan

– Procedures are established for management, Procedures are established for management, decision-making, communication.decision-making, communication.

– Milestones are identified and possibly negotiated.Milestones are identified and possibly negotiated.

What are the deliverables and What are the deliverables and outcomes during this stage?outcomes during this stage?

Baseline Project Plan (BPP)Baseline Project Plan (BPP) A comprehensive plan containing all work A comprehensive plan containing all work

associated with a project. Sections of this associated with a project. Sections of this deliverable may describe deliverable may describe

– The Scope of the new systemThe Scope of the new system– Benefits anticipated from the new systemBenefits anticipated from the new system– Costs to be incurred, both developmental (one-Costs to be incurred, both developmental (one-

time) and operational (recurring)time) and operational (recurring)– RisksRisks– Resources requiredResources required

Statement of Work (SOW)Statement of Work (SOW) A much simpler document that describes the A much simpler document that describes the

work to be performedwork to be performed

Scope, risk, etc.Scope, risk, etc.

For whose benefit is the BPP created?For whose benefit is the BPP created? Why do we want to know these Why do we want to know these

things? Have we forgotten anything?things? Have we forgotten anything? The scope of the new systemThe scope of the new system Benefits anticipated from the new systemBenefits anticipated from the new system Costs to be incurred, both developmental Costs to be incurred, both developmental

(one-time) and operational (recurring)(one-time) and operational (recurring) RisksRisks Resources requiredResources required

Assessing RiskAssessing Risk

For any project, we need to understand the For any project, we need to understand the degree of associated risk. A measure of risk is degree of associated risk. A measure of risk is feasibility.feasibility.– Feasibility (defn): The capability of being Feasibility (defn): The capability of being

accomplished, doable or brought about. accomplished, doable or brought about. Six Categories of feasibility:Six Categories of feasibility:

– TechnicalTechnical– OperationalOperational– ScheduleSchedule– Legal and contractualLegal and contractual– PoliticalPolitical– EconomicEconomic

Which category is most important? Which one is the Which category is most important? Which one is the most likely predictor of the feasibility of a project?most likely predictor of the feasibility of a project?

Technical FeasibilityTechnical Feasibility

Assessment of the organization’s ability to Assessment of the organization’s ability to constructconstruct a a proposed system. Technical feasibility is a function of:proposed system. Technical feasibility is a function of:– Development group’s experience with hardware and softwareDevelopment group’s experience with hardware and software– Development group’s experience with the application, i.e. the Development group’s experience with the application, i.e. the

business rulesbusiness rules– Project sizeProject size– Project structureProject structure– User group’s experience with development projects and the User group’s experience with development projects and the

application areaapplication area Is the correlation (+) or (-) for each factor?Is the correlation (+) or (-) for each factor?

– e.g. As e.g. As project sizeproject size increases, risk will ____ . (increase, decrease). increases, risk will ____ . (increase, decrease).

Risk FactorsRisk Factors

Other Types of Other Types of FeasibilityFeasibility Assessing Technical Feasibility is like Assessing Technical Feasibility is like

asking “asking “CanCan we build it?” or “Are we we build it?” or “Are we capable of building the system?”.capable of building the system?”.

What questions are being asked for these?What questions are being asked for these?– Operational FeasibilityOperational Feasibility

Assessment of how a proposed system solves Assessment of how a proposed system solves business problems or takes advantage of business problems or takes advantage of opportunitiesopportunities

– Schedule FeasibilitySchedule Feasibility Assessment of time frame and project completion Assessment of time frame and project completion

dates with respect to organization constraints for dates with respect to organization constraints for affecting changeaffecting change

Still More Types of Still More Types of FeasibilityFeasibility

What questions are being asked What questions are being asked for these?for these?– Legal and Contractual FeasibilityLegal and Contractual Feasibility

Assessment of legal and contractual Assessment of legal and contractual ramifications of new systemramifications of new system

– Political FeasibilityPolitical Feasibility Assessment of key stakeholders in Assessment of key stakeholders in

organization’s view toward proposed organization’s view toward proposed systemsystem

Economic FeasibilityEconomic Feasibility

Assessing the financial benefits Assessing the financial benefits and costs for a projectand costs for a project

ConsiderConsider– Tangible benefitsTangible benefits– Intangible benefitsIntangible benefits– Tangible costsTangible costs– Intangible costsIntangible costs

Economic FeasibilityEconomic Feasibility

Four common measures of economic Four common measures of economic feasibilityfeasibility– Payback Period (the book refers to this as a Payback Period (the book refers to this as a

break-even ratio)break-even ratio)– IRR (Internal rate of return)IRR (Internal rate of return)– NPV (Net present value)NPV (Net present value)– ROI (Return on investment)ROI (Return on investment)

For each of the above, what is the unit of For each of the above, what is the unit of measure?measure?

Is “more” of the UOM better or worse?Is “more” of the UOM better or worse?

Cookbook approachCookbook approach

e.g. P&E 6.4, 6.10 (perhaps quiz e.g. P&E 6.4, 6.10 (perhaps quiz questions?)questions?)

1.1. Create a matrix:Create a matrix:a) Create a column for each year of the a) Create a column for each year of the

projectprojectb) Create a row (section) for the following:b) Create a row (section) for the following:

i) Cash inflows (benefits) i) Cash inflows (benefits) ii) Cash outflows (costs)ii) Cash outflows (costs)

- Development (one-time) costs in early year(s)- Development (one-time) costs in early year(s)- Operating (recurring) costs each year after, for the Operating (recurring) costs each year after, for the

life of the projectlife of the project

c)c) Discount everything based on the Time Discount everything based on the Time Value of MoneyValue of Money

Cookbook approach Cookbook approach (cont.)(cont.)

2.2. Do the calculations Do the calculations– Payback Period. Find the point Payback Period. Find the point

where cash in-flows exceed cash where cash in-flows exceed cash outflows. Use interpolation to find outflows. Use interpolation to find the remainder of the final year.the remainder of the final year.

– IRRIRR– ROIROI– NPVNPV

DefinitionsDefinitions

Payback Period:Payback Period:– The length of time required to recover the cost of an The length of time required to recover the cost of an

investment (e.g. purchase of computer software or investment (e.g. purchase of computer software or hardware), usually measured in years hardware), usually measured in years

IRR (Internal rate of return):IRR (Internal rate of return): – The discount rate for which the total present value of The discount rate for which the total present value of

future cash flows equals the cost of the investmentfuture cash flows equals the cost of the investment NPV (Net present value): NPV (Net present value):

– The arithmetic sum ofThe arithmetic sum of discounted cash flowsdiscounted cash flows (all inflows (all inflows and outflows) that will result from an investment decision and outflows) that will result from an investment decision or income streamor income stream

ROI (Return on investment):ROI (Return on investment): – The "Return" (incremental gain) from an action, divided by The "Return" (incremental gain) from an action, divided by

the cost of that actionthe cost of that action

QuestionQuestion

Are projects with a negative Are projects with a negative return ever adopted?return ever adopted?– Is there a cost of “doing nothing”?Is there a cost of “doing nothing”?

What is the What is the realreal comparison to be comparison to be made?made?

Important Important ConsiderationsConsiderations Steering committees usually prefer Steering committees usually prefer moremore

analysis rather than analysis rather than lessless..– They also prefer They also prefer qualityquality over quantity. * over quantity. *

Additional analyses can be performed:Additional analyses can be performed:– The best case scenarioThe best case scenario– The worst case scenarioThe worst case scenario– The most likely case scenarioThe most likely case scenario– Weight the probability of each to obtain a single Weight the probability of each to obtain a single

number.number.

* So does your instructor.* So does your instructor.