Economic feasibility analysis is the second element in a feasibility analysis. This element determines if the cost and benefits with the system is worthy of continuing the system. The steps for creating an economic feasibility analysis are as follows: 1) Identify Costs and Benefits. When going over a system you must consider the requirements to produce this system and the benefits this system will offer. Costs and benefits of the system can be put into four categories: 1. development costs, 2. operational costs, 3. Tangible benefits, and 4. intangibles. 2) Assign Values to Costs and Benefits. This will be one of the hardest steps in the economic feasibility analysis process. Mainly because at this step you have to determine the value of all your costs and benefits, even ones that you might not know how to value certain items, you are able to accumulate all these costs by asking people in that certain area of producing the system. 3) Determine Cash Flow. After determining values of costs and benefits you then should consider these values for the next couple years after the system has been active. You should consider the increase in costs over the next couple years in order to be accurate. 4) Determining ROI and BEP ROI stands for Return on Investment this is a percentage that will be displayed at the bottom of your economic feasibility analysis. This percentage shows the measurement of the average rate of return when using this system. ROI = Total Benefits-Total Costs/ Total Costs BEP stands for Break-Even Point this is also displayed at the bottom of your economic feasibility analysis. This percentage shows the measurement of years until the system is able to produce as much money as was invested into producing the system. BEP= Number of years of negative cash flow+ That Year’s Net Cash Flow- That Year’s Cumulative Cash Flow/ That Year’s Net Cash Flow 5) Determine NPV NPV shows the difference between the value of the benefits and the value of costs. When this number is calculated it shows if the overall economical value is worth using as a system. This number can’t be calculated until all the other steps are performed. This would conclude your economic feasibility analysis sheet for your costs and benefits of your system.
Economic Feasibility is the second element of the feasibility analysis. With this section we are determining if we should build the system (should being the key word). There are many steps and assessment measures that are used for this process. Amanda does a very good job in explaining each step. Instead of typing the same information, I'm going to talk about why Economic Feasibility is important in looking at under the Feasibility Analysis. In the Economic Feasibility Section someone would want to: identify cost and benefits, assign values to cost and benefits, determine cash flow, and assess financial viability using net present value, return on investment, and break even point. If someone is starting a new project, this is important in determining if the money is available to fun the project and if the user is going to be able to afford the system or project. I personally feel that this section is important to look at because even though a project might have Technical Feasibility and Organizational Feasibility, if the projects not Economically Feasibility then I am not sure that I would go forward with the project. There needs to be Economic Feasibility and until this is successfully completed I would try to alter the project or system.
Economic feasibility analysis is the second element in a feasibility analysis. This element determines if the cost and benefits with the system is worthy of continuing the system. The steps for creating an economic feasibility analysis are as follows:
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When going over a system you must consider the requirements to produce this system and the benefits this system will offer. Costs and benefits of the system can be put into four categories: 1. development costs, 2. operational costs, 3. Tangible benefits, and 4. intangibles.
2) Assign Values to Costs and Benefits.
This will be one of the hardest steps in the economic feasibility analysis process. Mainly because at this step you have to determine the value of all your costs and benefits, even ones that you might not know how to value certain items, you are able to accumulate all these costs by asking people in that certain area of producing the system.
3) Determine Cash Flow.
After determining values of costs and benefits you then should consider these values for the next couple years after the system has been active. You should consider the increase in costs over the next couple years in order to be accurate.
4) Determining ROI and BEP
ROI stands for Return on Investment this is a percentage that will be displayed at the bottom of your economic feasibility analysis. This percentage shows the measurement of the average rate of return when using this system.
ROI = Total Benefits-Total Costs/ Total Costs
BEP stands for Break-Even Point this is also displayed at the bottom of your economic feasibility analysis. This percentage shows the measurement of years until the system is able to produce as much money as was invested into producing the system.
BEP= Number of years of negative cash flow+ That Year’s Net Cash Flow- That Year’s Cumulative Cash Flow/ That Year’s Net Cash Flow
5) Determine NPV
NPV shows the difference between the value of the benefits and the value of costs. When this number is calculated it shows if the overall economical value is worth using as a system. This number can’t be calculated until all the other steps are performed. This would conclude your economic feasibility analysis sheet for your costs and benefits of your system.
Economic Feasibility is the second element of the feasibility analysis. With this section we are determining if we should build the system (should being the key word).
ReplyDeleteThere are many steps and assessment measures that are used for this process. Amanda does a very good job in explaining each step. Instead of typing the same information, I'm going to talk about why Economic Feasibility is important in looking at under the Feasibility Analysis. In the Economic Feasibility Section someone would want to: identify cost and benefits, assign values to cost and benefits, determine cash flow, and assess financial viability using net present value, return on investment, and break even point. If someone is starting a new project, this is important in determining if the money is available to fun the project and if the user is going to be able to afford the system or project.
I personally feel that this section is important to look at because even though a project might have Technical Feasibility and Organizational Feasibility, if the projects not Economically Feasibility then I am not sure that I would go forward with the project. There needs to be Economic Feasibility and until this is successfully completed I would try to alter the project or system.