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Cost Benefit Analysis

Need to conduct an information management cost benefit analysis or feasibility study and want practical suggestions to ensure rapid project delivery?

The objective of a feasibility study or cost benefit analysis is to describeCost Benefit Analysis the information management requirement or opportunity in clear, technology independent terms that all stakeholders can agree upon.

Opportunities or requirements may be driven by regulatory requirements e.g. the need to develop an anti-money laundering system to meet USA Patriot Act requirements, or by other business requirements e.g. the need to improve processing performance or expand business intelligence capability.

What is a cost benefit analysis?

Important information management decisions are primarily based on answers to the following:
  • How much will it cost? and
  • Do the benefits out weigh the cost?
Financial analysis is an evolving process. It starts with rough estimates early in the project planning, or business case analysis phase and become progressively more refined during requirements analysis and architecture and design.

The objective is to provide management and technical teams with adequate information for analyzing and evaluating solution alternatives.

The document is used by management in conjunction with the feasibility study to make decisions about initiating a project as well as recommending continuing, of terminating, a project.

How is a cost benefit analysis used?

It helps management:
  • Decide which feasible alternative is preferred to meet management objectives;
  • Determine a baseline for measuring if a system is meeting performance objectives; and
  • Plan, budget and allocate resources among many projects.
What does management look for?

Some items that help management include:
  • Documented production support costs;
  • Continued technical or vendor support for existing hardware or software;
  • Ease of use of existing system compared to ease of use of proposed solution;
  • Capacity of existing and proposed solution to meet current and planned service level requirements;
What are some other management considerations?

Management needs to develop and maintain list of calculations, assumptions, cost and benefits and source of this information as a basis for future evaluation reviews.

Cost Benefit Analysis Checklist

Introduction

Identify the origin of the request e.g. describe what precipitated this project request.
Provide the objectives to the feasibility study in clear measurable terms.
Provide an explanation of the requirement e.g. describe the requirement in technology-independent terms. State the specific deviations from the desired situation, the cause, and the trigger for the new requirement or opportunity.
Describe any new information needs associated with the new requirement.
Validate the description of the opportunity with all stakeholders and impacted organizations.
Identify all organizational units, both internal and external, that will be impacted by the new opportunity.
Provide a glossary of terms and abbreviations.

Evaluation Criteria

Provide a description of the criteria that will be used to judge each alternative.

Alternatives Considered

Provide a description of each proposed alternative including:
  • Resources required;
  • Risk involved;
  • Impact on enterprise information architecture;
  • Impact on technology or technology involved;
Provide at least two alternatives, even if one alternative is a "Do Nothing" alternative.
Describe the anticipated benefits of each alternative.

Evaluation

Provide a systematic comparison of the alternatives and list all potential implementation issues and risks.

Recommendation

Provide a supporting narrative describing the recommended alternative.
Ensure that the recommended alternative is not too "risky" in terms of new technology or culture change.

Summary...

The objective of a feasibility study is to describe the information management requirement or opportunity in clear, technology independent terms that all stakeholders can agree upon.

The objective of cost benefit analysis is to provide management and technical teams with adequate information for analyzing and evaluating solution alternatives.

Both of of these documents should be completed as part of an information management business case analysis.




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