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- We will then need to assess the six project feasibility factors our book discusses. Cost has been determined to be a major factor in the project, so we will need to review three possible alternative solutions and compare Cost Benefit Analysis (CBA) spreadsheets for each of three alternative solutions. Each CBA spreadsheet clearly identifies the Net Present Value (NPV), Return on Investment (ROI), and Break-Even Point Analysis. Another team has created two of the Cost Benefit Analysis spreadsheets; we will need to complete one for the analysis of Alternative C – Nova.
The Project Manager will hold a Structured Walk through with the customer and management using the Cost Benefit Analysis. The walk-through process is described in our book. A cross functional team will then review and vote on the project at the end of Week 4. The project can either be accepted as is; be validated after requested changes are made; or the project can be canceled, so it is important we do our best!
In order to create the best documentation, we will need to
- continue reading in our book; last week, we read Chapters 1 and 2; this week, we must understand all the concepts in Chapters 3 and 4;
- read the Petrie’s Case Study at the end of Chapter 3 and 4 to add to what we read in the Chapter 2 Petrie’s Case from Week 1;
- use the Petrie’s Chapter 3 case to make sure we understand who is on the project team;
- review the Project Workbook – Week 2 folder in Doc Sharing. This folder contains documents we need. The folder will contain cost/benefit information needed to complete Cost Benefit Analysis. a. Three Cost Benefit Worksheets; one for each of the possible alternative solutions containing tangible costs, one-time costs, recurring costs, and discount rates for our analysis (called Alternative A, Alternative B, and Alternative C) b. Cost Benefit Analysis Spreadsheets (we will need to complete the spreadsheet for alternative C – Nova). Alternative A and Alternative B have been completed by another team. Review them for help in completing the spreadsheet Cost Benefit Analysis of Alternative C.
CASE: PETRIE’S ELECTRONICS
Managing the Information Systems Project
Jim Watanabe, the assistant director of information technology at Petrie’s Electronics, a Southern California–based electronics retail store, walked into his building’s conference room. It was early in the morning for Jim, but the meeting was important for him. Jim was going to put together his team for the customer relationship project he had just been named to manage. It was Jim’s first big project to manage at Petrie’s, and he was excited about getting started.
“Hi Jim,” said Ella Whinston, the chief operations officer. With Ella was a guy Jim did not know. “Jim, this is Bob Petroski. I’ve asked that he be on your project team, to represent me.”
Jim and Bob shook hands. “Nice to meet you, Jim. I’m looking forward to working with you on this project.”
“And Bob knows how important this project is to me,” Ella said, “so I expect him to keep me informed about your progress.” Ella smiled.
Great, Jim thought, more pressure. That’s all I need. Just then, John Smith, the head of marketing walked into the conference room. With him was a young woman Jim recognized, but he wasn’t sure from where.
“Jim,” John said, “Let me introduce you to Sally Fukuyama. She is the assistant director of marketing. She will be representing marketing, and me, on your ‘No Customer Escapes’ project.”
“Hi Jim,” Sally said, “I have a lot of ideas about what we can do. Even though I still have my regular job to worry about, I’m excited about working on this project.”
“Hi Jim,” Sally said, “I have a lot of ideas about what we can do. Even though I still have my regular job to worry about, I’m excited about working on this project.”
“Who else will be on your team?” Ella asked.
“I am bringing Sanjay Agarwal from IT,” Jim said. “He is in charge of systems integration in the IT department and reports to me. In addition to myself and Sanjay and Sally and Bob, we will also have a store manager on the team. I’m trying to get Carmen Sanchez, the manager of the store in Irvine (California). Like the rest of us, she is really busy, but I think we have to have a store manager on the team.”
“Irvine?” Ella asked. “That’s one of our top stores. Carmen should have a lot of insight into the issues related to keeping customers, if she is managing the Irvine store. And you are right, she is going to be very busy.”
“So,” John asked, “When is your first meeting?”
(Hoffer 80-81)
Hoffer, Joseph Valacich
1.What qualities might Jim possess that would make him a successful project manager?
2. How do you think Jim should respond to Ella’s implied pressure about the importance of the project to her?
3. Identify a preliminary set of tangible and intangible costs you think would occur for this project and the system it describes. What intangible benefits do you anticipate for the system?
Systems Planning and Selection
Now that the “No Customer Escapes” project team has been formed and a plan has been developed for distributing project information, Jim began working on the project scope statement, workbook, and baseline project plan. He first drafted the project scope statement and posted it on the project’s intranet (see PE Figure 4-1). Once posted on the intranet, he sent a short e-mail message to all team members requesting feedback. Minutes after sending the e-mail, Jim’s office phone rang.
“Jim, it’s Sally. I just looked over the scope statement and have a few comments.”
“Great,” replied Jim, “it’s just a draft. What do you think?”
“Well, I think that we need to explain more about how the system will work and why we think this new system will more than pay for itself.”
“Those are good suggestions; I am sure many others will also want to know that information. However, the scope statement is a pretty high-level document and doesn’t get into too much detail. Basically, its purpose is to just formally announce the project, providing a very high-level description as well as briefly listing the objectives, key assumptions, and stakeholders. The other documents that I am working on, the workbook and the baseline project plan, are intended to provide more details on specific deliverables, costs, benefits, and so on. So, anyway, that type of more detailed information will be coming next.”
“Oh, OK, that makes sense. I have never been on a project like this, so this is all new to me,” said Sally.
“Don’t worry,” replied Jim, “getting that kind of feedback from you and the rest of the team will be key for us doing a thorough feasibility analysis. I am going to need a lot of your help in identifying possible costs and benefits of the system. When we develop the baseline project plan, we do a very thorough feasibility analysis—we examine financial, technical, operational, schedule, legal and contractual feasibility, as well as potential political issues arising through the development of the system.”
“Wow, we have to do all that? Why can’t we just build the system? I think we all know what we want,” replied Sally.
“That is another great question,” replied Jim. “I used to think exactly the same way, but what I learned in my last job was that there are great benefits to following a fairly formal project management process with a new system. By moving forward with care, we are much more likely to have the right system, on time and on budget.”
“So,” asked Sally, “what is the next step?”
“Well, we need to do the feasibility analyses I just mentioned, which become part of the project’s baseline project plan. Once this is completed, we will have a walkthrough presentation to management to make sure they agree with and understand the scope, risks, and costs associated with making ‘No Customer Escapes’ a reality,” said Jim.
“This is going to be a lot of work, but I am sure I am going to learn a lot,” replied Sally.
“So, let me get to work on the feasibility analyses,” said Jim. “I will be sending requests out to all the team members to get their ideas. I should have this email ready within an hour or so.”
“Great, I’ll look for it and respond as soon as I can,” answered Sally.
“Thanks, the faster we get this background work done, the sooner we will be able to move on to what the system will do,” replied Jim.
“Sounds good, talk to you later. Bye,” Sally said.
“Bye Sally, and thanks for your quick feedback,” answered Jim.
(Hoffer 119)
1. Look over the scope statement (Figure 4-1). If you were an employee at Petrie’s Electronics, would you want to work on this project? Why or why not?
2. If you were part of the management team at Petrie’s Electronics, would you approve the project outlined in the scope statement in Figure 4-1? What changes, if any, need to be made to the document?
3. Identify a preliminary set of tangible and intangible costs you think would occur for this project and the system it describes. What intangible benefits do you anticipate for the system?
Alternative “C” Economic Analysis
· Contains:
1. Tangible Benefits Worksheet
2. One Time Cost Worksheet
3. Recurring Cost Worksheet
4. Discount rates
· Used to create Cost/Benefit Analysis Spreadsheets for possible alternative solutions. Cost/Benefit Analysis spreadsheet is located in doc sharing.
· Description of Alternative C – Nova Corporation. (see page 151 in the book)
1. Industry Leader in CRM solutions
2. Large and complex
3. Pricing only based on modules purchased
4. License for the use of the system is middle of the row
1. Tangible Benefits Worksheet – Nova
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Nova – Alternative “C” Tangible Benefits Worksheet |
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A. |
Cost reduction or avoidance |
$12,500 |
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B. |
Error reduction |
$ 3,500 |
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C. |
Increased Flexibility |
$ 5,500 |
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D. |
Increased speed of activity |
$ 7,500 |
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E. |
Improvement management/planning control |
$15,000 |
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F. |
Ease of interfacing with business partners |
$16,000 |
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Total Tangible Benefits |
$60,000 |
2. One Time Cost Worksheet – Nova
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Nova – Alternative “C” One Time Costs Worksheet |
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Development Costs |
$ 2,000 |
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New Hardware |
$ 1,000 |
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Software License or Purchase cost |
$19,500 |
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User Training |
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Site Preparation |
$ 4,000 |
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Total One Time Costs |
$30,000 |
3. Recurring Cost Worksheet – Nova
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Nova – Alternative “ C” Recurring Cost Costs Worksheet |
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| A. |
Software Maintenance |
$ 2,500 |
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Incremental Data Storage |
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Communications |
$ 9,000 |
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Supplies |
$ 7,000 |
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Other |
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Total Recurring Costs |
$25,000 |
4. Discount Rate = 12%
Need to let Management Team know what:
1. What the Overall NPV is.
2. What the Return on Investment is.
3. What the Break Even Point is.
Also discuss in the Baseline Project Plan Report
Alternative C
| Cost Benefit Analysis Spreadsheet For NOVA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YEAR | 0 | YEAR | 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | TOTAL | Must be given: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Economic Benefit | $0 | 1. Net economic benefit from Tangible benefit worksheet goes in row 7 cell C7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1.00000 | 2. discount rate: | Row 8 Cell A8 as a fraction; ie 12% would be entered as .12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PV of Benefits | 3. One time cost which will be placed in row 13,cell B13. make sure to enter the cost as a negative | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. Recurring costs place in row 15 – cell C15, make sure to enter the cost as a negative | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NPV of all Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| One-Time Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recurring Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount Rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PV of Recurring Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NPV of all Costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overall NPV | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overall ROI | 0.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Calculating the Break Even Point | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Break-even Analysis | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yearly NPV Cash Flow | 1. Find the last year row 30 is negative; go up the column to the year listed in row 6 – write down that result as the whole year. Then do steps 2 and 3 below to calculate fraction to add to the whole year value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overall NPV Cash Flow | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Use the First year of positive cash flow to calculate break-even fraction | 2. First year row 30 is positive, take row 29 and subract row 30 in same column and then divide result by the row 29 value/ row 29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actual break-even occurs at | Post step 3 here!!! | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BEP | 3. ADD Step 1 (full year value) with Step 2 (fractional year value) = |
