Question

what economic information must be known in order to correctly conduct a feasibility study?

Answer 1

The purpose of an economic feasibility study (EFS) is to demonstrate the net benefit of a proposed project for accepting or disbursing electronic funds/benefits, taking into consideration the benefits and costs to the agency, other state agencies, and the general public as a whole.

Economic Feasibility:
- costs and benefits
- early estimates based on rule of thumb
- refined successively until we have a complete Cost-Benefit Analysis

                       - often all three feasibility measures will not point to the same alternative
BUT-             - i.e. a GUI system is operationally desirable, but the technology may not exist or is
                           too costly to implement
                     - clients and the analysts must evaluate the results of the feasibility study and make
                            decisions together based on the results
Cost-Benefit Analysis
       - the process of isolating and estimating costs and benefits
       - in order to do a cost-benefit analysis, two sides of the ledger must be considered
       - system costs
       - benefits from the system
      - if a system is economically feasible, then the benefits should outweigh the system costs
          within a defined period of time acceptable to the user/client
System Costs
Development Costs
        - one time expenses for the project
        - estimates improve as more detail is given
        - Personnel Costs
            salaries of all individuals who develop the system
            also includes benefits
        - User Time
        - Training Costs
        - Equipment Costs
           cost of acquiring all new hardware/software for project
             if the equipment is shared, then divide the total cost or compute it proportional to its
           usage
               also cost of new furniture, chairs, etc. if needed
         - Computer Usage Costs
         - Supply and Materials Costs
                 hardware, software and office supplies consumed
                 costs of manuals and other documentation too
          - Facility Costs
                   expenditures necessary to prepare the site for the new system
           - Overhead and Miscellaneous Expenses
                     rent, utilities, training course fees, etc.
                   cost of running two parallel systems

Ongoing Operating Costs
              - recurring costs for the operation of the system
             - all of the development costs required on an ongoing basis: personnel, equipment,
                    maintenance, overhead, etc.
Fixed Costs
        - occur at regular intervals
         - costs are not dependent upon the operation of the system
        - constant, no matter how much or little the system is used
         - eg. property taxes, lease payments must be paid monthly
        - also, company benefit plans (ie hospital coverage)
Variable Costs
        - occur in proportion to the usage of the system
        - CPU costs
        - supply costs
        - wage costs
        - some maintenance costs

Techniques Used to Determine Economic Feasibility
Four different measures:
1) payback analysis
2) return on investment
3) net present value
4) profitability index

Activities related to the assessment of the company's activity are the subject of economic analysis. In the conditions of changing environment, technological and scientific development, making decisions concerning enterprise management requires fast and reliable information. Therefore, economic analysis and the financial analysis included in it have become particularly important.