Chapter 7 - Systems Evaluation and Selection

A) Introduction

Systems Values (TELOS feasibility factors, PDM strategic factors, MURRE design factors
Cost / Benefit Analysis

B) Rating the Value of a Well-designed System (Fig. 7.2)

TELOS (Fig. 7.3, 7.4)

Productivity
- Breaking down communication barriers through sharing resources & networks
- Designing easy-to-use & meaningful user interfaces
- Automating transaction processing and low-level tasks
Differentiation
- giving customers modern and less expensive products & services
- providing improved access to data
- improving tracking of products and services & data management
- increasing speed of response to customers
- increasing breadth of information available for decision making
Management
- perform tasks intelligently and efficiently
- combat competitors effectively
- innovate
- reduce conflicts
- adapt quickly to changes (Fig. 7.5)
MURRE Design Factors (Fig. 7.6)
measures the quality of systems design

C) Evaluating and Weighing the Costs and Benefits of Systems Design

least is not always best

Costs:

Computing Resources Costs
Systems Development and Implementation Costs
- Systems Development Costs
- Equipment Installation Costs
- Programming Costs
- Training Costs
- Testing Costs
- Conversion Costs
Operations and Maintenance Costs
- Staff Costs (CIO, SAs, Sys. Designers, Accountants, Programmers, Systems Engineers, Operators, Data entry, DBA, Security Officers, Techs, Managers, Clerical Staff)
- Supplies Costs
- Hardware Maintenance Costs
- Software Maintenance Costs
- Power & Light Costs
- Insurance Costs
- Telecommunication Costs
- Building & Building Service Costs
- Security Costs

Benefits

Tangible Benefits (Direct Benefits)
Intangible Benefits

e.g

1) reduce stock-outs will increase customer orders
2) improved productivity due to ergonomics
3) more Point-of-sale devices increase # of customers

expected value technique for measuring intangible benefits (Fig. 7.7)

Net Present Value (NPV) Method - discounts all expected future net cash flows to the present using a predetermined cost of capital discount rate

e.g. investment of $20,000 expects to yield $5000 for 7 years & 12% interest - @PV(5000, .12, 7) = $22,820 NPV = 22,820 - 20,000 = $2820

Present Value Index Method - used to rank alternatives by taking into account the intial investment

Year	Present Value of $1 at 10%	Net Cash Inflow	PV of Net Cash Inflow
1	0.909	$ 35,000	$ 31,815
2	0.826	37,000	30,562
3	0.751	25,000	18,775
4	0.683	20,000	13,660
5	0.621	20,000	12,420
Total		$ 137,000	$107,232
Init. Investment			$100,000
NPV			$ 7,232

System A		System B	System C
Total PV of net cash inflow	$107,232	$86,400	$93,600
Init. Investment	$100,000	$80,000	$90,000
NPV	$ 7,232	$ 6,400	$ 3,600

PVI

System A	1.07 ($107,000/$100,000)
System B	1.08
System C	1.04

D) Compiling Value & Cost-Benefit Data in the Systems Evaluation and Selection Report (Fig. pp. 264-6)

Exercises: look over 1-11; turn in 7.12, 7.13, 7.14