The Importance of Feasibility Analysis

The Importance of Feasibility Analysis This report analyses the importance of Feasibility Analysis to businesses when they are deciding on the viability of a proposed business venture involving the implementation or improvement of an information system. This report is split into three parts the initial part defines a feasibility analysis, the second part explains how an IT feasibility analysis should be conducted using the template of the IT Infrastructure Library (ITIL) and the last section in this report examines a completed feasibility study by Powerco, a utilities distribution Company in New Zealand. What is a feasibility analysis? As the words feasibility analysis suggests a feasibility analysis is carried out to decide on the viability of a proposed venture; basically it answers the essential question of is it a viable option and should the project be implemented. All stages of the analysis are carried out in order to answer this question. When researching it is clear that the majority of all large successful businesses conduct a feasibility study to ensure they embark on a viable project, for example Microsoft have a large research department situated in many different cities throughout the globe, this department collaborates with many institutions producing many feasibility analyses a year. When examining successful businesses such as Microsoft, I discovered they will not commit to a new project without first thoroughly assessing all of the variables and reviewing the probability of success through a feasibility study. The feasibility analysis process As a feasibility analysis is often time consuming and expensive (many companies pay consultants to perform the analysis), a preliminary study is undertaken to determine if it would be worthwhile to proceed to the feasibility analysis, within this preliminary study the evaluation of alternatives is made along with brief cost and benefit analysis. A feasibility study is usually conducted after the project managers have discussed all project ideas and every possible scenario, only if the results are positive the feasibility study begins. The content of feasibility Analysis Within a feasibility study it is necessary to discuss a number of areas including; details of the present system; what are the functions and objectives, who are the Stakeholders and the reasons to improve or replace the current system for example inconsistencies / inadequacies in functionality or performance, is there any possible solution alternatives and the advantages and disadvantages of the alternatives. Feasibility analysis can be split into four types; Operational factors; Operational feasibility is used to assess how well the information systems will work if implemented in the given environment. Define the urgency of the project If the project is implemented, will it be a success? Does management support the project? How do end users feel about the new system? People tend to resist change can this problem be overcome? Can management and end users adapt to the change? Has the proposed venture conflicted with organisational or government regulations? Schedule factors; It often takes time to build and implement an information system solution; will the project still be necessary on completion? The technology may exist, but are there the skills available to not only complete the project but complete it on schedule? Is the project deadline reasonable? Is the deadline desirable or mandatory? What are the results of failing to meet the project deadline? Technical; Technical feasibility is the measure of the practicality of specific technical information system solutions and the availability of technical resources. Often new technologies are solutions looking for a problem to solve: Is the technology for the information system solution practical? Does the necessary technology exist? Is the technology proven? Is the technology practical and reliable? Are the necessary skills available to design and implement the system? Is there the infrastructure to cope with ongoing maintenance (problems, upgrades) Economic; This is regularly the most important analysis made, it asks important questions; Is the project justified (i.e. will benefits outweigh costs)? Can the project be done, within given cost constraints? What is the minimal cost to attain a certain system? Which alternative offers the best return on investment? How much will it cost to maintain? The 12 Stages of an ITIL Feasibility Analysis ITIL is a global guidance document that provides worlds best practices for IT service management companies. ITIL guidelines are often used in feasibility studies and are broken down into twelve stages. These twelve stages are described in this next section and if necessary a brief example has been given; Introduction It is important that an introduction to the feasibility analysis is made; this introduction includes the content, the intent, the intended audience, the purpose, and organizational details of the feasibility analysis. Management Summary This stage summarises, what the other stages within the template will explain in more detail; this section provides a quick overview of the feasibility analysis and would include the following, an Introduction, Management Summary, Background of the Project, Objectives, Situation, Benefits, Problems and Risks, Technical Requirements, Options, Cost/Benefit Analysis, Financial/Budget Implications and Recommendations Background to the Project A project is proposed for a specific scenario and this step describes the reason the proposal exists. For example; current sales are at a low due to increased competition, the proposal is for a new company website, where customers are able to buy directly. Objectives The high level business purposes of the proposal, including the long-range management goals. For example, the proposed project is to increase sales by an estimated 15% per annum over the next ten years. Situation This step describes the present condition, without the service in place, including market conditions, it is necessary to highlight the need for the proposed system, and the consequences of the proposal not being authorized. Benefits In the benefits section, it is necessary to focus on the short term benefits of the proposal; this is different to the objective stage which focuses on the long term gains and the cost-benefit step which focuses primarily on the financial benefits. An example of this could be the increased customer satisfaction of the proposed website. Problems and Risks It is important to identify and assess possible problems and risks of the proposed project associated with it within the development, design, and deployment stages. This is done by doing a risk assessment on the proposed system; this will be used to identify problems in many different areas, including technologies, lack of user support, or resources. Technical Requirements Has the business the technological infrastructure for the proposed system? These requirements include knowledge of the hardware and software required, for example, does the business possess the database architecture, network structures, and hardware to sustain the website, will it be necessary to outsource? Options It is recommended in the ITIL framework that a feasibility analysis includes any alternatives to the proposal, including advantages and disadvantages and costs. An example of this could be advertising to increase sales and would show the estimated cost of this. Cost/Benefit In this step, the total cost of the project is calculated; this includes development, design, deployment, and maintenance of the new service. Costs include facilities, hardware, labor, and software. The project cost is compared to the financial benefits provided by the proposed system. What are benefits? These are examples of benefits, more accurate / timely information. Improved operation, increased flexibility of operation, increased output, error reductions, cost reductions; benefits can be placed into three different categories; Monetary; when money values can be calculated, Tangible; when benefits can be quantified, but monetary values cannot be calculated. Intangible; when neither of the others apply, this applies there is a benefit, but it cannot be quantified. There are different types of costs; Project related; development, purchasing, Installation, training costs, Operational costs; these costs are often ongoing costs and include; Maintenance on the hardware; maintenance, lease, materials Software; maintenance fees and contracts Personnel; operation, maintenance There are a number of tools used, which helps in the economic section of the feasibility analysis these are; Cost-benefit analysis (CBA); which estimates and totals up the equivalent money value of the benefits and costs of proposed projects to establish whether they are worthwhile. Payback Analysis; which is used to calculate how long it will take to pay the costs of the project Return on Investment Analysis; which compares the lifetime profitability of alternative solutions, Net Present Value Analysis: using current monetary values, profitability is determined of the proposed project, Return On Investment (ROI) compares the lifetime profitability of alternative solutions, (Lifetime benefits Lifetime costs) Lifetime costs and finally you can compare alternatives with the feasibility analysis matrix. Financial/Budget Implications Once the overall costs have been established, it is necessary to verify if the necessary funds are available, if so how? This may result in changes to the budget or priorities and reducing expenditure to accommodate the costs. Recommendations In this final step recommendations regarding the proposal are made including scheduling and budgeting Summary In summary these twelve steps that make up the ITIL is among the first activities a manager will undertake in preparation for a proposal for a new IT service, though it is important to remember these steps make a general guide and different information systems may require amendments. Examples of feasibility analysis Though the majority of businesses keep their own feasibility analysis private, research identified an interesting feasibility analysis conducted by Powerco. In this section I will briefly review this feasibility analysis in a case study due to the word restrictions on this essay and the extensiveness of the ITIL framework. Powerco has an estimated 410,000 consumers which makes it one of New Zealands largest utilities Companies. These customers expect a reliable service 24 hours a day, 7 days a week. Powerco applications are split between two platforms; Oracle RAC and Microsoft SQL Server, which has meant that the business had additional expenses of licensing, supporting, operating, and maintaining two systems. Additionally it was awkward for staff to alternate between the systems when working. As the Oracle platform of Powercos warranty cycle was approaching expiration, and the financial system was scheduled an important upgrade, it was clear to the company that it was time to reassess its options and whether it should consolidate to a single server platform or replace existing hardware. Powerco acknowledged that to consolidate the database platforms would create a more simple IT environment and would reduce the total cost of the database system significantly. The case for consolidation was simple why maintain two systems if you dont need to? explains Mr. Griffiths, Infrastructure Manager, Powerco. Powerco undertook preliminary study of the solutions and assessed the pros and c ons of Oracle versus SQL Server. This analysis pointed towards some significant advantages in choosing SQL Server over Oracle. These included reduced licensing and maintenance costs, ease of management and fewer requirements for a specialised skill set to manage and service the system. A feasibility study of migrating to SQL Server was then completed by consultants on Powercos behalf including a cost/benefit analysis, a risk assessment, analysis of the alternatives and the four factors discussed earlier in this report, this confirmed Powercos applications could be supported on SQL Server, with the remaining end of life applications being replaced with SQL Server compatible ones, the feasibility study showed that unlike other options Microsoft SQL Server, serving could be done in-house. Microsofts SQL Server was the cheapest option to license, maintain, and support, particularly because of the specialised nature of Oracle. The business would be more streamline and efficient with just the single platform. Increases security. Further Tangible and Non-tangible benefits. Due to the results of the feasibility study, Powerco changed from the two platforms to solely Microsoft SQL Server, the result of this consolidation has meant Powerco has been able to reduce costs significantly, also ensuring it was easier to maintain and manage in-house and eliminating the need for external consultants. The migration to SQL Server has cut the overall cost of ownership by $390,000 a year, also helping to streamline Powercos IT systems and have given a number of other Tangible and Non-tangible benefits. Conclusion In conclusion this report has explained what a feasibility study is and when it should be used, I have then reviewed the various stages which are recommended by the IT industry experts at the ITIL and have given an example of a successful feasibility study undertaken by Powerco. I believe to be objective this report should have explored examples of a unsuccessful feasibility study, however this was not possible due to my research not providing any suitable cases, but still the findings of this report are clear, it is advisable to do a feasibility analysis, as it is tried and tested and the vast majority of large and established companies use this method to check the viability of a proposed venture and are taking a substantial risk if a feasibility study is not carried out before embarking on new project.