Determining the total cost of ownership
Cost-benefit analysis is the process used to measure the benefits associated with taking a particular action (investment) or making a decision over the expenses accrued to taking that specific action. Several vital questions compound every step of an analyst:
- Can it be done at all? If a system is economically feasible, then the benefits should outweigh the costs within a defined period of time acceptable to the client.
- What are the other roles of a system analyst in a project? Works in tune with the selection and evaluation team in determining which hardware and software are essential for the completion of the project.
- Which financial analysis techniques apply to the development project? The three primary techniques used by analysts to evaluate development strategies and decide how the project proceeds are payback analysis, return on investment, and net present value.
- Payback analysis: This determines the time an information system takes to recoup for the funds spent during investment through increased benefits and reduced costs. (Bagdad & Papagiorgiu, 2017).
- Return on investment: is a percentage rate used to measure the gain or loss generated on a project’s investment relative to the amount of funds spent. (Bagdad & Papagiorgiu, 2017). Return on investment is a crucial indicator of performance that analysts use to determine the profitability of the project.
- Net present value: is the difference between the current value of cash inflows and the present value of cash outflows over a period of time.
References
Bağdatlı, M. E. C., Akbıyıklı, R., & Papageorgiou, E. I. (2017). A fuzzy cognitive map approach applied in cost-benefit analysis for highway projects. International Journal of Fuzzy Systems, 19(5), 1512-1527.