COST BENEFIT ANALYSIS (CBA)

COST BENEFIT ANALYSIS (CBA): QUANTITATIVE AND

QUALITATIVE ASPECTS
DEFINITION:

COST BENEFIT ANALYSIS (CBA) IS A SYSTEMATIC APPROACH USED TO EVALUATE THE ECONOMIC VIABILITY OF
PROJECTS OR DECISIONS BY COMPARING THE BENEFITS DERIVED FROM A PROJECT WITH THE ASSOCIATED COSTS.

QUANTITATIVE ASPECTS OF CBA

THESE INVOLVE NUMERICAL DATA THAT CAN BE MEASURED AND CALCULATED. KEY COMPONENTS INCLUDE:

1.MONETARY COSTS:
1. Direct Costs: Salaries, equipment, software, training, etc.
2. Indirect Costs: Overhead costs such as rent, utilities, etc.
3. Opportunity Costs: The potential benefits lost when choosing one alternative over another.

2.MONETARY BENEFITS:
1. Increased Revenue: Profit from increased sales or improved products.
2. Cost Savings: Reduction in operating costs due to process automation, streamlined workflows, etc.
3. Productivity Gains: Measurable improvements in worker efficiency.
3. Payback Period: Time taken for the benefits to cover the initial costs.
4. Net Present Value (NPV): Discounting future benefits and costs to determine their present value.
5. Internal Rate of Return (IRR): The rate at which the project's benefits equal its costs.

Qualitative Aspects of CBA

These involve subjective factors that cannot be easily measured but are critical for decision-making:
1. Employee Satisfaction: Improved working conditions, employee morale, and retention rates.
2. Customer Satisfaction: Enhancing customer experience through better service, more accessible support, etc.
3. Brand Reputation: Long-term impacts on the organization’s brand, credibility, and trustworthiness.
4. Social and Environmental Impacts: Effects on community well-being, environmental sustainability, etc.
5. Risk Mitigation: Reducing the risk of system failure, legal implications, or future costs due to system errors.
 Definition
• Assessing information needs involves understanding the data, tools, and
processes required by an organization to make effective decisions and operate
efficiently.
Steps in Assessing Information Needs:
1. Identify Key Stakeholders: Understand who needs the information
(management, employees, customers).

ASSESSING 2. Determine Business Objectives: Align information requirements with the

organization's strategic goals.
INFORMATION 3. Analyze Existing Information Systems: Evaluate current data sources, systems,
NEEDS OF THE and tools for gaps.

ORGANIZATION 4. Identify Information Types:

• Operational Data: Daily transaction data, inventory levels, production
schedules.
• Tactical Information: Short- to medium-term data used by middle management.
• Strategic Information: High-level, long-term data used by top management to
guide future planning.
5. Determine Data Sources: Internal (sales records, employee data) vs. external (market trends, competitor data).
6. Data Accuracy and Timeliness: Ensure the information is reliable, up-to-date, and actionable.

Tools for Assessing Information Needs:

• Surveys and Interviews: Collect data from employees and stakeholders.
• Business Process Mapping: Visualize workflows to identify gaps in information flow.
• Data Analytics: Examine existing data for trends, anomalies, and insights.
• Benchmarking: Compare the organization's data needs with industry standards.
Definition of a System:
A system is a set of interrelated components working together towards a common goal
by interacting within an environment.
Types of Systems:
1. Open System:
1. Interacts with its external environment.
2. Examples: Organizations, ecosystems.
3. Characteristics: Dynamic, adaptable, exchanges matter and information.
2. Closed System:
SYSTEM
1. Does not interact with its environment. DEVELOPMENT:
2. Example: Physical systems like a thermostat. CONCEPT OF
3. Characteristics: Self-contained, static, isolated. SYSTEM
3. Deterministic System:
1. Operates in a predictable manner with no randomness.
2. Example: Mechanical systems.
3. Characteristics: Given specific inputs, the outputs are always the same.
4. Probabilistic System:
1. Incorporates randomness, with outcomes that can be predicted with a
probability.
2. Example: Stock markets, weather systems.
3. Characteristics: Uncertainty, risk management.
SYSTEM APPROACHES: SYSTEM DEVELOPMENT
LIFE CYCLE (SDLC)
Definition
The System Development Life Cycle (SDLC) is a structured process used to design, develop, test, and deploy information
systems.
Phases of SDLC:
1. Planning: Identifying the scope and objectives of the system.
2. Analysis: Detailed analysis of user requirements and system specifications.
3. Design: Creation of the system architecture and interface design.
4. Development: Coding and building the system.
5. Testing: System is tested for bugs, security flaws, and functionality.
6. Implementation: Deployment of the system into a live environment.
7. Maintenance: Ongoing support, updates, and bug fixes.
 OTHER METHODS
End-User
Aspect Prototyping Waterfall Method Spiral Method
Development (EUD)

A linear and sequential Combines iterative

Involves users themselves development prototyping with a
Building an early version of the methodology where each systematic Waterfall-like
creating or modifying
Overview software to test, get feedback, and
their own software to suit phase must be completed approach, focusing on
iterate based on user needs. before moving to the risk analysis in each
their specific needs.
next. cycle.

1. Requirements gathering 1. Requirements 1. Determine objectives

Users are given tools to
2. Quick design 2. Design 2. Identify risks
modify or build software
Process 3. Build prototype 3. Implementation 3. Develop and test
without needing to be
4. User evaluation 4. Verification 4. Review and plan for
professional developers.
5. Refine prototype 5. Maintenance next iteration

Empowering
non-developers to meet Iterative development
Structured and clear-cut
User feedback and refinement of their own needs without while focusing on
Focus development process with
functionality. relying heavily on identifying and mitigating
well-defined phases.
professional risks at each phase.
programmers.
 End-User
Aspect Prototyping Waterfall Method Spiral Method
Development (EUD)

Low during the early Medium to high,

Users are actively involved, High user involvement as
User phases; users primarily especially in early cycles
providing feedback on prototypes users create or customize
Involvement interact with the system for risk analysis and
for refinement. software.
after deployment. feedback.

Flexible, as users can High flexibility because it

High flexibility due to iterative
change or adapt their Low flexibility since it can adapt to changing
Flexibility feedback loops and ongoing
tools and software follows a rigid structure. requirements at each
changes.
continuously. iteration.

UI/UX-heavy software Aerospace software

Custom Excel macros Banking software
Example Use - Applications needing frequent - Mission-critical systems
- Websites built with - Enterprise systems with
Cases adjustments - Large-scale, complex
drag-and-drop tool well-defined goals
- Mobile apps ERP solutions
 System Analysis
System analysis is the process of understanding and specifying in detail what a system needs to do to solve a problem. It
involves studying the existing system or solution, identifying problems or requirements, and determining how best to design
a system to meet these requirements.

Key Components:

•Requirements Gathering: This is the process of collecting the requirements from stakeholders, end-users, and others to
understand what the system should do. Methods for gathering requirements include interviews, surveys, observation, and
document analysis.

•Feasibility Study: A preliminary analysis is conducted to assess whether the proposed solution is viable in terms of cost,
technology, and time. Feasibility analysis looks into:
• Technical Feasibility: Can the system be developed with current technology?
• Economic Feasibility: Is the project cost-effective? Can it deliver a return on investment?
• Operational Feasibility: Will the system work in practice? Will users adopt it?
• Schedule Feasibility: Can the system be developed in the required timeframe?

System Models: This step involves using diagrams and models to represent the system visually. Some of the
common models include:

•Data Flow Diagrams (DFD): Show how data moves through the system.
•Entity-Relationship Diagrams (ERD): Define the relationships between data entities in the system.
•Use Case Diagrams: Illustrate the functional interactions between users (actors) and the system.
 System Analysis
•Functional vs. Non-functional Requirements:

• Functional Requirements: Specify the functions that the system must perform (e.g., the system must allow users
to log in).
• Non-functional Requirements: Specify how the system performs functions (e.g., performance, security,
usability).

System Analysis Phases:

1.Problem Definition: Identify the issue or opportunity the system will address.
2.Requirement Elicitation: Interact with users and stakeholders to gather requirements.
3.Analysis of Current System: Study the existing system, if any, to identify what changes are needed.
4.Conceptual Design: Develop a high-level understanding of the solution.
 System Design
System design focuses on defining the architecture, components, modules, interfaces, and data for the system to satisfy the specified
requirements.

Key Aspects of System Design:

•Architectural Design: This is the high-level structure of the system, defining how the components will interact. It includes the design of system
interfaces and data flow.
• Top-down Design: The system is broken down into sub-systems and modules from a broad perspective.
• Modular Design: Emphasizes breaking down the system into smaller, manageable modules or components that can be independently
developed and tested.

•Database Design: Defines the structure of the database including tables, relationships, and keys. Important concepts in database design include:

• Normalization: The process of organizing data to reduce redundancy.

• Data Schema: Describes the structure of data in a database.
•User Interface Design (UI/UX): Ensures the system will be easy to use. This includes designing layouts, forms, menus, and feedback
mechanisms.

•Detailed Design: Focuses on the specifics of system components, such as algorithms, data structures, and processing details. It includes:
• Class Diagrams: Define objects, classes, and their relationships.
• Sequence Diagrams: Show how objects interact over time to accomplish tasks.

•Security Design: Ensures that the system will be secure and protected against threats, ensuring data integrity, confidentiality, and availability.
Techniques like encryption, authentication, and role-based access control are defined.
 System Implementation
System implementation refers to the process of putting the designed system into practice. It involves coding, testing, deployment, and training of
users.
Key Steps in Implementation:
•Coding: Translating the design into executable code using a programming language (e.g., Java, C#, Python). Code should follow best practices
such as modularity, readability, and scalability.
•Integration: Once individual modules or components are developed, they need to be integrated into a complete system. This involves ensuring
the components work together as expected.
•Testing: This step involves checking the system to ensure it meets the specified requirements and is free from bugs or errors. Types of testing
include:
• Unit Testing: Testing individual components.
• Integration Testing: Testing combined components.
• System Testing: Testing the entire system.
• User Acceptance Testing (UAT): Testing by the end-users to ensure it meets their needs.
•Documentation: Creating manuals, guides, and other documentation to ensure that users and developers can understand and use the system. This
can include:
• Technical Documentation: For developers, detailing the code, architecture, and design.
• User Documentation: For end-users, providing instructions on how to use the system.
•Deployment: Moving the system from the development environment into the production environment. This can be done in phases:
• Direct Changeover: The old system is replaced immediately by the new system.
• Parallel Running: The new system runs alongside the old system for a time to ensure reliability.
• Phased Implementation: The new system is introduced in phases.
• Pilot Implementation: The new system is tested in a limited part of the organization before full deployment.