Chapter

Table F. I lists costs and benefits for the proposed Brightmouth HE College payroll system. It is not comprehensive hut illustrates some of the types of items that you should have listed.

Table F.I

Costs ami benefits for the Brightmouth College payroll system

Category

Cost/l)enefit

Development costs software purchase - software cost plus selection and purchasing cost project team employ rnent costs Setup costs training include costs of trainers and operational staff time lost while training staff recruitment computer hardware and other equipment which might have a residual value at end of projected life accommodation - any new/refurbished accommodation and furniture required to house new system, initial systems supplies - purchase of stationery, disks and other consumables Operational costs operations staff - full employment costs stationery - purchase and storage* maintenance and standby - contract or estimation of occurrence costs accommodation including heating, power, insurance etc.* Direct benefits saving on local authority fees later payment - increase interest income through paying salaries later in the month Indirect benefits improved accuracy - assumes that direct costs of correcting current errors that should not occur with a computerized system are known (for example, takes one person one day per week) Note: benefit should measure what can be done w ith that additional time Intangible benefits improved management information - this should lead to improved decision making but it is very difficult to quantify the potential benefits

These items, and some other elements, might show corresponding savings or costs through no longer being required. K>r example, although new office furniture might he required for the new system, the existing furniture might he redeployed or sold

3.1 Costs and benefits for the Brightmouth College payroll system

3.2 Ranking project Obviously you will have your own views about which have the best and worst cash cash flows flows. You should, however, have considered the following points: project 2

requires a very large investment compared to its gain - in fact we could obtain £ I (X).(XX) by undertaking both projects I and 3 for a lower cost than project 2. Both projects I and 4 produce the bulk of their incomes relatively late in their lives compared w ith project 3. which produces a steady income over its life.

3.3 Calculating payback periods

The payback periods for each of the projects w ill occur during the year indicated: project I year 5. project 2 year 5. project 3 year 4 and project 4 year 4 (end).

We would therefore favour project 3 or 4 over the other tw o. Note that, in reality, w ith relatively short-term projects such as these we would produce a monthly (or at least quarterly) cash flow forecast and it is therefore likely that project 3 would be seen more clearly to have a shorter payback period than project 4.

3.4 Calculating the return on investment

The return on investments for each of the projects is: project 1: 10%. project 2: 2%. project 3: 10% and project 4: 12.5%. Project 4 therefore stands out as being the most beneficial as it earns the highest return.

3.5 Calculating the net present value

The net present value for each of the projects is calculated as in Table F.2. On the basis of net present value, project 4 clearly provides the greatest return and project 2 is clearly not w orth considering.

Table F.2 Calculating the net present value of projects 2, 3 and 4

Year

Discount factor

Discounted cash flow

U)

Project 2

Project 3

Project 4

0

1 .(KMX)

-1,000.000

-100.000

-120.000

0.9091

181.820

27.273

27.273

0.8264

165.280

24.792

24,792

0.7513

150.260

22.539

22.539

0.6830

136,600

20.490

20.490

0.6209

186.270

18.627

46.568

NPV

-179.770

13.721

21.662

Tabic F.3 illustrates the effect of varying discount rates on the NPV. In each case 3.6 Calculating the the 'best' project is indicated in bold. In this somewhat artificial example, which effect of discount project is best is very sensitive to the chosen discount rate. In such a case we must rates on NPV either have a very strong reason to use a particular discount rate or take other criteria into account when choosing among the projects.

Table F.3 The effect on net present value of varying the discount rate

Year

Cash flow values (£)

Project A

Project H

Project C

0

-8.(XX)

-8 .(XX)

-IO.(XX)

1

4.(XX)

l.(XX)

2.(XX>

2

4,(XX)

2.(XX)

2.(XX)

3

2.(XX)

4.(XX)

6.(XX)

4

l.(XX)

3,000

2.(XX)

5

500

9.000

2.(XX)

6

500

-6.(XX)

2.(XX)

Net Profit

£ 4.(XX)

£ 5.000

£ 6.(XX)

NPV @ 8%

£2.111

£ 2.365

£2.421

NPV @ 10%

£ 1.720

£ 1.818

£ 1.716

NPV @> 12%

£ 1356

£ 1.308

£ 1.070

Expected sales of £500,000 per year over four years would generate an expected net income of £l.2m (after allowing for annual costs of £200.000) which, by almost any criteria, would provide a good return on an investment of £750,000. However, if sales are low. and there is a 30% chance of this happening, the company will loose money - it is unlikely that any company would wish to take such a risk knowingly.

This example illustrates one of the basic objections to using this approach for one-off decisions. Were we to repeat the project a large number of times we w ould expect, on average, an income of £500,000 per annum. However, the company is developing this package only once - they can't keep trying in the hope of. on the average, generating a respectable income. Indeed, a severe loss on this project could mean it is the last project they are able to undertake.

3.7 Project evaluation using cost-benefit analysis

4.1 Classification of (a) A pay roll system is a data-oriented or information system that is application systems specific.

(h) The bottling plant system is a process control or industrial system which contains embedded software.

(c) This looks like an information system that will make heavy use of computer graphics. The plant itself might use control software which might be safety-critical but this is not the subject of the project under consideration.

(d) Project management software tools are often categorized as general packages. There would be a considerable information systems element to them.

(e) This could use an information retrieval packagc that is a general software package. It is also a strong candidate for a knowledge-based system.

4.2 Identification of The user staff could, arguably, be regarded as a project resource. The writers' view risks is that it is useful to add a fourth category of risks - those belonging to the environment in which the system is to be implemented. Among the risks that might be identified at Brightmouth College are:

• conflict of views between the finance and personnel departments;

• lack of staff acceptance for the system, especially among personnel staff;

• lack of cooperation by the local authority that used to carry out payroll work;

• lack of experience with running payroll at the college;

• lack of administrative computing expertise at the college;

• possible inadequacy of the chosen hardware;

• changes to the payroll requirements.

4.3 Selection of (a) This would appear to be a knowledge-based system that is also safety-

project approaches critical. Techniques associated with knowledge based systems could be used for constructing the system. Testing would need to be very carefully conducted. A lengthy parallel run where the system is used to shadow the human decisions made in real cases and the results compared could be considered. Another approach would be to develop two or more systems in parallel so that the adv ice offered could be cross-checked.

(b) This is an information system that will be on a relatively large scale. An SSADM approach would be justified. When student loans were first introduced there was no existing system and so there might have been some scope for a prototype.

(c) This is an embedded system that is highly safety-critical. Measures that might be adopted to ensure the reliability of the system include:

• use of mathematics-based specification languages to avoid ambiguity;

• developing parallel versions of the same software so that they can be cross-checked;

• statistical control of software testing to allow for the estimation of the reliability of the software.

The rev iew might find that the benefits forecast in the original feasibility study 4.4 Feedback report have not been achieved. 'Corrections' to the existing system can allow those between project benefits and other ones to be realized. This would lead to a propositi for a new review and project to modify the installed option feasibility study

(a) A prototype could be useful as part of the feasibility study. A mock-up of an 4.5 Stages of a executive information system loaded w ith current management information project where a could be set up manually and then be tried out by the managers to see how prototype can be easy and useful they found it. appropriate

(b) A prototype could be used to assist in the design of the user dialogues. SSADM allows for prototypes for this purpose as part of its requirement specification module.

(c) A prototype of the most response critical transactions could be made at the physical design stage to see whether Microsoft Access could produce software that gave a satisfactory performance.

5.1 Calculating productivity rates and using productivity rates to project effort

Chapter 5

Tables F.4 and F.5 illustrate productivity rates and estimated project effort. 'Table F.4 Productivity rates

Project

Work-months

SLOC

Productivity (SLOC/month)

a

16.7

6050

362

b

22.6

8363

370

c

32.2

13334

414

d

3.9

5942

1524

e

17.3

3315

192

f

67.7

38988

576

g

10.1

38614

3823

h

19.3

12762

661

i

59.5

26500

445

Overall

249.3

153868

Estimated effort

Table F.5

Estimated effort

Project Estimated work-months Actual Difference a

6050/617 = 9.80 16.7 6.90 5942/617 = 9.63 3.9 -5.73

There would be an under-estimate of 6.9 work-months for project a and an overestimate of 5.7 for project d.

5.2 Course staff costs program -activities required

A list of activities might include:

• obtain user requirements:

• analyse the structure of the data already held;

• design report and write user proposal;

• write technical specification;

• design software:

• write operating instruction;

• carry out acceptance testing.

The most difficult tasks to estimate are often those that arc most sensitive to the size and the complexity of the software to be produced, in this case the design, writing and testing of the software. Writing the technical specification can also be difficult because of this, but estimating problems tend to be concealed here as deadlines can be met by omitting detail that can be added latter when deficiencies are found.

The duration of activ ities that are to be carried out by users may also present problems, as this might depend upon their sense of priorities.

The most obvious effort driver would seem to be the number of words required. 5.3 Effort drivers for Difficulty factors might include: a student

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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