Cash Flow Analysis

•      Examines the direction, size and pattern of cash flow that is associated with the proposed information system.

•      Need to have revenues to offset, otherwise not the method of choice to use for your analysis

 

Cash Flow Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time Value of $$$

•      A $1 investment at 7 percent today will be worth $1.07 at the end of the year and will double in approximately ten years.

 

•PRESENT VALUE

–The cost or benefit measured in today’s

dollars and depends on the cost of money

 (opportunity cost if you did something else

 with the $)

 

 

 

 

 

 

Present Value Analysis

•      Helps the systems analyst to present to business decision makers the time value of the investment in the formation system as well as the funds flow

•      PV is a way to assess all of the economic outlays and revenues of the information system over its economic life and compare costs today w/ future costs and today’s benefits with future benefits

Present Value Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Present Value

•      The present value of $1.00 at a rate of i is calculated as follows

•      n = number of periods

•      i = rate

              n 
=1 /(1+i)

 

 

 

 

Taking into account PV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Guidelines for Analysis

•             Use Breakeven if project needs to be justified in terms of costs, not benefits or if benefits don’t substantially improve with new system

•             Use Payback when the improved tangible benefits form a convincing argument for the proposed system

•             Use Cash Flow when the project is expensive relative to the size of the co or when the business w/ be significantly affected by large drain

•             Use Present Value when the payback period is long or when the cost of borrowing money is high