Question

Ocean Sound College is a culinary sushi college located on the West Coast, and is a subsidiary of the Sushi Heights Corporation. You are the systems analyst assigned from the college IT department to conduct the systems analysis phase of the development of a new listing system for the school’s housing office.

Background

Based on your earlier recommendations, the housing office decided to continue the systems development process for a new listing system.

Now, at the end of the systems analysis phase, you are ready to prepare a system requirements document and give a presentation to the housing office.

You must examine tangible costs and benefits to determine the economic feasibility of several alternatives. If the housing office decides to go ahead with the development process, the system can either be developed in-house or purchased as a vertical package and configured to meet the needs of the office.

Currently, housing listings are created by an employee at the housing office. While the demands on her time vary throughout the year, based on previous work logs kept by employees in the office you determine that the time spent maintaining the manual system (creating listing sheets for the various binders, copying, and filing listings in binders) by this employee works out to an average of 30 hours of overtime per month. The overtime cost of this employee is $25 per hour, including overhead.

Housing listings are pulled throughout the month, and all listings are reviewed once a month to delete those more than two months old. Currently, the once a month reviews are done by a student worker who spends 25 hours a month going through the 15 binders at the housing office, and pulling all old listings for review by a housing office staff member. This student is paid $12.50 per hour, including overhead. A new system would conduct this review automatically, and generate a list for review.

Your estimates indicate that the housing office can expect to have staff spend 4 hours a week performing maintenance, file backups, and updating of the new system, at $25 per hour.

The university has lost revenue on some of its rental properties, having them lie idle for a month because of listings pulled either erroneously by staff, or deliberately by people using the housing listing service. Estimates put the amount of lost revenue due to listing problems such as these at two percent of anticipated yearly rental receipts. In the current year, the anticipated rental receipts total $680,000. Annual increases of rent vary from year to year depending on market rates but the average increase is three percent per year.

Based on your research, you originally estimated that an in-house development project could be completed in about three weeks. This time estimate is based on 55 hours a week split between you and another analyst from the IT department. The IT department uses a charge-back rate of $40 per hour for work for other university departments. Three training sessions of four hours each will be required to train all staff in the new system. The charge-back cost of a training specialist from the IT department is $25 per hour. Training and technical support for the first year for the vertical software package is included in the initial price.

As an alternative to in-house development, a vertical software package is available for about $6,000, including an on-site day of training and technical support for the first year. If the department buys the package, it would take you about two weeks to install, configure, and test it, working full-time. The vendor provides free support during the first year of operation, but then the housing office must sign a technical support agreement at an annual cost of $750.

For both the in-house development and the vertical software package, the necessary hardware will cost about $3,500. Network upgrading, necessary for either option, has been estimated at $4,000 by the network operations team.

In your view, the useful life of the system will be about five years, including the year in which the system becomes operational.

Tasks

1. What options for a development strategy does Ocean Sound College have for developing a new system? Provide a brief explanation of specific alternatives that should be considered if development continues including in-house development and other strategies that would be a good fit. Justify your suggestions by analyzing the advantages and disadvantages of the chosen methods.
2. You have been asked to prepare a system requirements document and deliver a presentation to the housing office management. What should be the main elements of the system requirements document?
3. What financial analysis tools are available to calculate total cost of ownership for the system? What are the advantages (and possible disadvantages) of each tool?
4. Develop a cost-benefit analysis (include a spreadsheet, graph and/or diagram), using payback analysis, ROI, and present value (assume a discount rate of six percent). Part C of the Systems Analyst’s Toolkit describes popular financial analysis tools.

Answer 1

1. This question is intended to get students to consider what development strategies may be feasibleto build Ocean Sound’s housing system. While there are many options, students should explain why they chose the specific methods explained. The methods explained on pages 263 – 271 in the text include outsourcing, in-house development, purchasing a software package from a vendor, customizing a vendor-supplied package, using an application service provider, and developing user applications.

Outsourcing this service could be a viable option for the college, a third party could run the system for the college and collect a management fee out of the rent receipts it collects on the college’s behalf. An example of a method that students should not choose for the college is probably user applications.

2.Students can find this information on pages 571-572 in Part A of the Systems Analyst’s Toolkit The recommended sections for the report include introduction, summary, findings, recommendations, time and cost estimates, expected benefits, and an appendix. Also, it might be helpful to:

Follow the guidelines in the Part A of the Systems Analyst’s Toolkit.

Include chart graph or other helpful visual information in the document

Carefully spell check and proofread the entire document.

3. Instructors should recommend that students review the financial analysis tools that are describedin Part C of the Systems Analyst’s Toolkit. Payback analysis, return on investment (ROI), and netpresent value (NPV) are explained, together with the advantages and disadvantages of each tool.

Cost-benefit analysisis the process of comparing the anticipated costs of an information system to the anticipated benefits. Cost-benefit analysis is performed throughout the SDLC to determinethe economic feasibility of an information system project and to compare alternative solutions. Many cost-benefit analysis techniques exist.

Payback analysisis the process of determining how long it takes an information system to pay for itself.

Return on investment(ROI) is a percentage rate that measures profitability by comparing the total net benefits (the return) received from a project to the total costs (the investment) of the project.Return on investment analysis considers costs and benefits over a longer time span than payback analysis

.Present Value Analysisconsiders how a dollar you have today is worth more than a dollar you do not receive until one year from today.

4. Eliminating 30 hours of overtime per month will create annual savings of $9,000 (30 hours x $25 hourly rate x 12 months)

Eliminating the student worker position will create annual savings of $3,750 (25 hours x $12.50 hourly rate x 12 months)

Capturing of lost revenue (2% of receipts) will save $13,600 annually (.02 x $680,000)Network upgrades and hardware requirements will cost $7,500

Package options

oVertical software package from vendor – $6,000 in initial year

oConsultant’s time to install, configure, and test vendor package - $3,200 ($40 hourly rate x 40 hours x 2 weeks)

oVender tech support – after first year annual cost of $750

In-house option

oConsultants time to develop system will cost $6,600 ($40 hourly rate x 55 hours x 3 weeks)

Initial training and support - $300 ($25 hourly rate x 12 hours)

Maintenance, file backups, and updating will cost $5,200 annually (4 hours x $25hourly rate x 52 weeks)