DE LA SALLE JOHN BOSCO

COLLEGE
B.Sc. (Information Technology)

2nd Semester

SYSTEM ANALYSIS
AND DESIGN
Course References:
1. System Analysis and Design (10 th edition Global)
by: Kenneth E. Kendall & Julie E. Kendall ; ISBN: 1-292-28415
2. System Analysis and Design in a changing world (7 th edition)
by: Satzinger & Jackson & Burd ; ISBN: 978-305-11720-4
3. System Analysis and Design (12 th edition)
by: Shelly Cashman ; ISBN: 978-357-1178-1
4. System Analysis and Design (2022 series)
by: Prof. Dr. Girish Kathuria Amity Global Business School University
Vikas Publishing 2021 original published
 BLOCK II: SYSTEM ANALYSIS
UNIT 6 SYSTEM COST AND BENEFITS

5.1 OBJECTIVES

After going through this unit, you will be able to:

 Know about the Cost-Benefits Analysis (CBA)

 Understand the principles of cost-benefit analysis
 Analyse and evaluate the process of cost-benefit analysis
 Learn about the cost-benefit analysis tools
 6.2 COST BENEFIT ANALYSIS

• A Cost-Benefit Analysis (CBA) is done to determine how well or how poorly a planned action will turn out. Although a CBA can
be used for almost anything, it is most commonly done on financial questions.

• The benefits of a CBA are it finds, quantifies and adds all the positive factors. Then, it identifies, quantifies and subtracts all the
negatives—the costs.

• The real trick to doing a cost-benefit analysis well is making sure you include all the costs and all the benefits and properly quantify
them.

• A credible CBA provides hard facts that answer three fundamental questions:
1. What must be accomplished to succeed?

2. What are the pros and cons of the viable choices?

3. Which choice is the best?

6.2.1 Principles of Cost-Benefit Analysis

• In practical terms, problems arise in making a cost-benefit analysis due to the fact that quantification of various components of costs is not
easy in all cases.

• Some underlying basic principles of CBA are as follows:

 Need for a common unit

All aspects of a project, whether positive and negative, should be expressed in a common unit to decide the
viability of any project, and money is the most convenient common unit. However, if money is received in place
of benefits, it may be considered as a benefit.

For Example, if there is a project that provides a free monthly visit to a doctor in a particular region as a
scheme for middle-aged persons or senior citizens, the value in lieu of that facility is the money value
equivalent to that benefit.
6.2.2 Categories of Costs and Benefits

• Expenditure made on installing a system refers to the costs associated with the system. Extra expenditure incurred due to the inefficient
working of a system is also a cost.

• Thus, cost towards not developing an efficient system is also a cost. Benefits are advantages converted to money equivalent, gained by
installing and using the new system.

• Such costs and benefits are of different kinds and many times the evaluation in terms of money becomes very difficult.

• Costs and benefits may be categorized as follows:

 Tangible or intangible
 Fixed or variable
 Direct or indirect

• Tangible or Intangible Costs and Benefits

- Tangible costs and benefits are those that can be measured easily. The amount of cash dispensed for any specific item or service is
known as its tangible cost. Such costs are clearly known and are estimated accurately. The same applies to tangible benefits.
• There are intangible costs that exist but are not visible immediately. If management is sure that certain activities, such as timely
procurement of raw material, are essential and that avoiding these activities may result in losses, then these are called intangible costs.

• There are benefits that are known to exist, but quite difficult to exactly measure. These are referred to as intangible benefits. The estimate
can only be approximated, it cannot be exact.

- For example, providing some welfare measures undertaken by a management to motivate and boost the morale of
employees cannot be exactly measured in terms of money values.

• Thus, benefits are more difficult to measure than costs. For example, the suppliers quote the cost of purchasing a terminal but they cannot
tell them of the specific benefits or financial advantages they gain by using it in a system.

• Tangible benefits like doing jobs in fewer hours or producing error-free output data are quantifiable.

• Intangible benefits that result in the form of more satisfied customers or improvement in corporate image (as user of modern and efficient
systems) cannot be easily quantified.
Direct or Indirect Costs and Benefits

- Costs, directly associated with a system, are known as direct costs.

For example, purchase of a pen drive for 500 is a direct cost as the association of the pen drive with the money spent is
direct.

Similarly, you can measure direct benefits. Direct benefits can also be attributed to a given project.

For example, if the installation of a new system is able to process 40 per cent more transactions per day, it can be taken as
a direct benefit.

Similarly, if opening a new counter increases sale by 25 per cent, this too is taken as a direct benefit.

- Indirect costs, on the other hand, are not directly associated with a particular activity in the system. They are classified as overhead expenses.

For example, to install a computer system, you need some space. Thus, the cost of space, the cost of maintenance of a
computer centre, the cost of lighting and air conditioning are all tangible costs.

- But it is not easy to quantify the proportion attributable to any specific activity.
- Indirect benefits are like by-products.

For example, a system installed for tracking sales calls to customers is an indirect benefit in marketing as it gives
additional information about the market and competition.
Such information on competition is an indirect benefit but its evaluation in terms of money cannot be done exactly.

Fixed or Variable Costs and Benefits

- Apart from the direct/indirect and tangible/intangible costs and benefits, there are some costs and benefits that remain
constant, independent of how a system is used.

- Fixed costs are sunk costs and are constant. They are one-time costs.

For example, investment on installation of equipment for a computer system is a fixed cost, which is constant
whether in use or not.

Similarly, insurance and purchase of software are fixed costs.

On the other hand, variable costs depend on the quantity of product and are incurred regularly; thus, these are proportional to
the volume of work and continue along with the system in operation. For example, the cost of computerized forms varies in proportion to the
amount of processing or the size of the reports
• System analysis is a process in which data are collected and then interpreted to identify the problems within the system.

• System analysis includes identification, understanding and examining a system so that the objectives of the system can be achieved.

• The predetermined objectives of the system analysis are as follows:

 It produces knowledge of the system operation.

 It identifies the user requirements for the proposed system.

The system analysis stage investigates the system operations and determines the solutions to solve the problem.

• System analysis is really vital in the completion of the development process of a system. It may be possible that a user is aware of the
problem but may not have the solution to it.

• A system analyst can work with a user to obtain the complete knowledge of a system.

• For having the complete information about a system, a logical model of the system is developed based on the detailed study of the given
system.

• The detailed study should be done using various modern tools and techniques which includes data flow diagrams, data dictionary and
rough descriptions of the relevant algorithms.
 5.4 FEASIBILITY STUDY
• A feasibility study is an evaluation of a proposal to determine the difficulty in carrying out a task.

• The major purpose of the feasibility study is to evaluate and consider alternative systems solutions, evaluate their feasibility
and propose the best possible alternative to the organization.

• The objectives of the feasibility study:

 To decide on the number and designation of the persons involved in operating the proposed
system in the organization.

 To determine the probable achievements of the proposed system.

 To estimate the benefits of the new system.

 The organizational changes needed for its successful implementation.

 What will be the estimated cost of the system.

• There are several components based on which a feasibility study is evaluated.

• These components or types are as follows:

 Economic – should be carried out to assess the cost, benefits and liabilities of the project.

 Operational – determines how well the solution of problems or a specific solution will work in an organization.

 Technical – Issues are identified and analyzed.

 Marketing – Basically, analyzed the market potential of the product or services.

 Cultural – It deals with aspects like the impact of the proposed project on the local culture.

 Legal – It determines if the proposed is within the local and state legal frameworks.

 Schedule – involved following factors: solution in time, project schedule constraints, time available, can it be built?, etc?
 5.6 SUMMARY

• The specific methods analysts use for collecting data about requirements are called fact finding techniques.

• These include the interview, questionnaire, record review and observation.

• Analysts usually employ more than one of these techniques to help ensure an accurate and comprehensive investigation.

• Analysts use interviews to collect information from individuals or from groups.

• The respondents are generally current users of the existing system or potential users of the proposed system.

• It is important to remember that respondents and analysts converse during an interview – the respondents are not being
interrogated.

• Interviews provide analysts with opportunities for gathering information form respondents who have been chosen for their
knowledge of the system under study.

• Interviews allow analysts to discover areas of misunderstanding, unrealistic expectations, and even indications of resistance
to the proposed system.
• Unstructured interviews, using a question and answer format, are appropriate when analysts want to acquire general
information about a system. This format encourages respondents to share their feelings, ideas, and beliefs. Structured
interviews use standardized questions in either an open – response or closed – response format. The former allows
respondents to answer in their own words; the latter uses a set of prescribed answers.

• The success of an interview depends on the skill or the interviewer and on his or her preparation for the interview.

• It is important to have adequate verification of data through other data collection methods.

• The use of questionnaires allows analysts to collect information about various aspects of a system from a large number of
persons. The use of standardized question formats can yield more reliable data than other fact – finding techniques, and the
wide distribution ensures greater anonymity for respondents, which can lead to more honest responses.

• The high cost of developing and distributing questionnaires demands that analysts carefully consider the objective of the
questionnaire and determine what structure will be most useful to the study and most easily understood by the respondents.
Questionnaires should also be tested and, if necessary, modified before being printed and distributed.
• Many kinds of records and reports can provide analysts with valuable information about organizations and operations.

• In record reviews, analysts examine information that has been recorded about the system and user. Record inspection can be
performed at the beginning of the study, as an introduction, or later in the study, as a basis for comparing, actual operations
with the records indicate should be happening.

• Records include written policy manuals, regulations and standard operating procedures used by most organizations and a
guide for managers and employees.

• Observation allows analysts to gain information they cannot obtain by any other fact finding method. Through observation,
analysts can obtain first hand information about how activities are carried out.

• This method is most useful when analysts need to actually observe how documents are handled, how processes are carried
out, observers know what to look for and how to assess the significance of what they observe.

• The process of analysis involves a detailed study of the current system leading to specifications of a new system. The
approach of analysis is a detailed study of various operations performed by a system and their relationships within and
outside the system. During analysis, data are collected on the available files, decision points and transactions handled by the
present system. Interviews, onsite observation and questionnaire are the tools used for system analysis.
• All procedures, requirements must be analysed and documented in the form of detailed Data Flow Diagrams or DFDs, data
dictionary, logical data structures and miniature specifications.

• System analysis also includes sub-dividing of complex process involving the entire system, identification of data store and
manual processes.

• The purpose of system analysis phase is to build a logical model of the new system.

• The first step is related to requirements modelling where you investigate business processes and documents what the new
system must do to satisfy users.

• To understand the system, you perform information gathering, such as interviews, observations, surveys, document review,
observation and sampling. You can use information gathering result produced by the tools to build business models, data and
process models, and object models.

• The system requirements document describes management and user requirements, costs and benefits, and outlines alternative
development strategies.

• System analysis is a process in which data are collected and then interpreted to identify the problems within the system
• The system analysis stage investigates the system operations and determines the solutions to solve the problem.

• System analysis is really vital in the completion of the development process of a system.

• A system analyst can work with a user to obtain the complete knowledge of a system.

• A set of system requirements for a proposed information system is the final product of the system analysis stage.

• A feasibility study is an evaluation of a proposal to determine the difficulty in carrying out a task. The major purpose of the
feasibility study is to evaluate and consider alternative systems solutions, evaluate their feasibility and propose the best
possible alternative to the organization.

• For any project to go ahead, it is essential during the early development that the economic feasibility study is carried out. It
forms the essential component of any system development process in any business.

• Based on the information in the economic feasibility report, a case is put before the stakeholders of the selected project to be
implemented. This case will provide the requisite details for the selection of a particular project over others.
• Factors like time value of money, quality of available data, investment and operating costs, suitability of assumptions, risk and
uncertainty are essential to the Economic Feasibility Study (EFS).

• Operational feasibility study (OFS) determines how well the solution of problems or a specific solution will work in an
organization and also how people feel about the solution provided.

• The marketing feasibility study basically analyses the market potential of the product or services, which will be produced as a
result of implementation of the proposed system.

• These feasibility factors provide the grounds for definitive recommendations on system development strategy, cost
effectiveness and sales strategy for the product/services, which are produced as a result of the implementation of the proposed
project.

• The cultural feasibility study deals with aspects like the impact of the proposed project on the local culture. It also determines
if an alternative project would better suit the proposed project and the environmental factors and cultural traditions and values.
This study checks whether the prevalent culture would accept or refuse the project.

• The legal feasibility study determines if the proposed study is within the local and state legal frameworks

• Preliminary investigations examine the feasibility of the software project under study. In the preliminary investigation and
feasibility study, the analyst collects information about what the end user expects from the new system.
• Feasibility study helps management to make a decision about whether the system under study is feasible. Since it is not
possible to implement all proposed projects, feasibility study should be completed within a short period of time.

• The foundation for the project effort, in totality, is set by a project team at the very beginning of the Software Development
Life Cycle (SDLC). While initiating a project, it is very important to justify it, i.e., to determine whether it should be built
or not.

• The first phase of the feasibility study is to identify the possible implementation alternatives for a project.  Technical,
economical and operational areas of the feasibility study must be addressed for the further development of the system.

• Decision regarding feasibility of the project should be made by the management and not the systems analyst.

• The systems analyst must address the three areas technical, economic and operational feasibility in the preliminary study of
the system under development.

• The most critical requirements for the analyst who gives the oral presentation are: (1) communication skills and knowledge
about the candidate system that can be translated into language understandable to the user and (2) the ability to answer
questions, clarify issues, maintain credibility and pick up on any new ideas or suggestions.
• The substance and form of the presentation depend largely on the purposes sought. The presentation may aim at informing,
confirming, or persuading.

• A presentation with this purpose verifies facts and recommendations already discussed and agreed upon. Unlike the
persuading approach, no supportive evidence is presented to sell the proposed change, nor is there elaborate reasoning
behind recommendations and conclusions.

• The presentation should be brief, factual and interesting Clarity and persuasiveness are critical. Skill is needed to generate
enthusiasm and interest throughout the presentation.

• The most important element to consider is the length of the presentation. The duration often depends on the complexity of
the project, the interest of the user group and the competence of the project team.

• After the completion of software project planning, the task of the software project manager is to make a proper
documentation of the software project planning results and this document is termed as Software Project Management Plan
(SPMP)
 5.7 KEY WORDS

• Interview: Analysts use interviews to collect information from individuals or from groups. The respondents are generally
current users of the existing system or potential users of the proposed system.

• Questionnaire: The use of questionnaires allows analysts to collect information about various aspects of a system from a
large number of persons.

• Record review: In record reviews, analysts examine information that has been recorded about the system and user.

• Observation: Observation allows analysts to gain information they cannot obtain by any other fact finding method.

• Study phase report: It refers to the process of executing plan with the help of lower and upper level planning on the basis of
report.

• Informing: This simply means communicating the decisions already reached on system recommendations and the resulting
action plans to those who will participate in the implementation.
THANK YOU!