What process would you follow to make this impor- tant decision? Who needs to be

Question

What process would you follow to make this impor- tant decision? Who needs to be involved? Assume that your project team has been working for three months to complete the systems design of a new Web- based seem to meet all users' needs. The project team must make a final decision on which option to implement. The following table summarizes some of the key facts about ach option. 1. a. customer ordering system. Two possible options b. c. What additional questions need to be answered to d. Based on the data, which option would you recom e. How would you account for project risk in your deci-, make a good decision? mend and why? sion making? Option 1 $1.5 million $1.5 million $0.5 million Factor Option 2 $3.0 million $2.2 million $1.0 million 15 months Annual gross savings Total development cost Annual operating cost Time required to implement Risk associated with project (expressed in probabilities) Benefits will be 50% less than expected Cost will be 50% greater than expected Organization will not/cannot make changes necessary for system to operate as expected Does syster? meet all manda- tory requirements? 9 months 20% 35% 25% 30% 20% 25% es Yes

Explanation / Answer

a. The process that should be followed to make the important decision of project analysis.

Inorder to make a analysis of two projects for decision making:

We have analysis the projects using the following methods

1. Econcomic anaylsis : It will analysis each project option how much economic feasible if each option is being selected and implemented.

2. Financial and Cost based analysis : Financial analysis is an another important aspect to be evaluated while analysising the options for project selection. Total financial cost involved for implementation of each project option to be anlaysed and decision should be made which option is best on cost versus financial benefits.

3. Technical feasibility: While making project analysis, the technical feasibility study should be taken into consideration. In simplest sense, techincal feasibility means the adequacy of each project option to prescribed norms. It should be ensured that the technical know how will be effective for each option and output adequacy should also be ensured.

4. Risk Analysis: The project option should be analysed on the basis of risk factor associated with it. The risk implies th risk beginning from the implementation to the output from each option. The risk percentage will have to analysed and decision to be made.

5. Implementation Time: Apart from the above, another important factor is the time period of implementation. Each project option should be analysed on the basis of time period for implementation. Low financial cost and risk factor but prolonged period of implementation will be not an effective option.

b. The financial analyst needs to be involved for making a proper decision on project evaluation and selection.

c. Additional questions required to be considered:

Total budgeted investment cost of the management, market analysis - whether such an option selected will have a market catch, competitive analysis - the competitators also to be considered and the analysed whether the market is fetching the existing system with much lesser cost, the customer ordering system should be a user friendly approached one or not.

d. The option 1 is recommended.

Reasons : First of all analysis on savings to cost involved to be done

Percentage = Total annual gross savings / (Development cost + Operating cost)

Therefore, option 1 it will be = $1.5 million / (1.5 million + 0.5 million) % = 75%

Option 2 it will be = $ 3.0 million /(2.2 million + 1.0 million) % = 93.75%

On this basis option 2 will be better but considering the factors of risk associated , expected percentage of changes in cost and benefits and time period for implementation, option 1 is better and recommended then the option 2.

e.The account for risk analysis in decision making:

Using the following methods the risks to be accounted for decision making:

Net present value method, Risk adjsuted returns basis etc

  

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