Project Evaluation
It is being increasingly recognized that individual projects need to be seen as components of a programme and should be evaluated and managed as such. A programme. in this context, is a collection of projects that all contribute to the same overall organizational goals. Effective programme management requires that there is a well defined programme goal and that all the organisation’s projects are selected and tuned to contribute to this goal. A project must be evaluated according to how it contributes to this programme goal and its viability, timing, resourcing and final worth can be affected by the programme as a whole. It is to be expected than the value of any project is increased by the fact that if is part of a programme - the whole, as they say. being greater than the sum of the parts.
Technical assessment of a proposed system consists of evaluating the required functionality against the hardware and software available. Where an organization has a strategic information systems plan, this is likely to place limitations on the nature of solutions that might be considered. The constraints will, of course, influence the cost of the solution and this must be taken into account in the cost- benefit analysis.
The most common way of carrying out an economic assessment of a proposed information system, or other development is by comparing the expected costs of development and operation of the system with the benefits of having it in place.
Assessment is based upon the question of whether the estimated costs are exceeded by the estimated income and other benefits. Additionally, it is usually necessary to ask whether or not the project under consideration is the best of a number of options. There might be more candidate projects than can be undertaken at any one time and, in any case, projects will need to be prioritized so that any scarce resources may be allocated effectively. The standard way of evaluating the economic benefits of any project is to carry out a cost-benefit analysis, which consists of two steps:
· Identifying and estimating all of the costs and benefits of carrying out the project: This includes, development costs of the system. The operating costs and the benefits that are expected to accrue from the operation of the system. Where the proposed system is replacing an existing one, these estimates should reflect the costs and benefits due to the new system. A sales order processing system, for example, could not claim to benefit an organization by the total value of sales - only by the increase due to the use of the new system.
· Expressing these costs and benefits in common units: We must evaluate the new benefits, which is the difference between the total benefit and the total cost. To do this, we must express each cost and each benefit in monetary terms.
Most costs are relatively easy to identify and quantify in approximate monetary terms. It is helpful to categorize costs according to where they originate in the life of the project.
· Development costs - include the salaries and other employment costs of the staff involved in the development project and all associated costs.
· Setup costs - include the costs of putting the system into place These consist mainly of the costs of any new hardware and ancillary equipment hut will also include costs of file conversion, recruitment and staff training.
· Operational costs - consist of the costs of operating the system once it has been installed.
Benefits, on the other hand, are often quite difficult to quantify in monetary terms even once they have been identified. Benefits may be categorized as follows,
v Direct benefits - these accrue directly from the operation of the proposed system. These could for example, include the reduction in salary bills through the introduction of a new, computerized system.
v Assessable indirect benefits - these am generally secondary benefits, such as increased accuracy through the introduction of a more user-friendly screen design where we might be able to estimate the reduction in errors, and hence costs, of the proposed system.
v Intangible benefits these are generally longer term or benefits that are considered very difficult to quantify. Enhanced job interest can lead to reduced staff turnover and, hence, lower recruitment costs.
As important as estimating the overall costs and benefits of a project is the forecasting of the cash flows that will take place and their timing, A Cash flow forecast will indicate when expenditure and income will take place.
We need to spend money, such as staff wages, during the development stages of a project. Such expenditure cannot he deferred until income received (either from using the software if it is being developed for in-house use or from selling it). It is important that we know that we can fund the development expenditure either from the company's own resources or by borrowing from the bank. In any event, it is vital to have some forecast of when expenditure such as the payment of salaries and bank interest will take place and when an income is Accurate cash flow forecasting is not easy, as it generally needs to be done early in the