ANALYZING COST AND BENEFITS
In Chapter 2, you learned that economic feasibility is one of the four feasibility
measurements that are made during the preliminary investigation of a systems request.
Now, at the end of the systems analysis phase of the SDLC, you must apply financial
analysis tools and techniques to evaluate development strategies and decide how the
project will move forward. Part C of the Systems Analyst’s Toolkit describes three popular tools, which are payback analysis, return on investment (ROI), and net present
value (NPV). These tools, and others, can be used to determine total cost of ownership
(TCO), which was described in Chapter 4. At this stage, you will identify specific systems development strategies and choose a course of action. For example, a company
might find that its total cost of ownership will be higher if it develops a system inhouse, compared with outsourcing the project or using an ASP.
An accurate forecast of TCO is critical, because nearly 80% of total costs occur after
the purchase of the hardware and software, according to Gartner, Inc. An IT department
can develop its own TCO estimates, or use TCO calculation tools offered by vendors.
For example, as shown in Figure 7-14 on the next page, HP and Oracle offer an online
TCO calculator that includes a questionnaire and a graphical display of results.