Question
Purpose New Century Wellness Group needs to perform a financial analysis of the system. A systems analyst needs to know how to calculate costs and
Purpose
New Century Wellness Group needs to perform a financial analysis of the system. A systems analyst needs to know how to calculate costs and benefits when conducting the analysis of system proposals, evaluating IT projects and making recommendations to management. In this milestone you will complete a financial analysis of the costs involved for a variety of systems implementation approaches.
Background
Based on your earlier recommendations, New Century decided to continue the systems development process for a new information system. You must examine tangible costs and benefits to determine the economic feasibility of several alternatives. If New Century decides to go ahead with the development process, the main options are to develop the system in-house or purchase a vertical package and configure it to meet New Centurys needs. You have studied those choices and put together some preliminary figures.
You know that New Centurys current workload requires six hours of office staff overtime per week at a base rate of $15 per hour (1). In addition, based on current projections, New Century will need to add another full-time clerical position in about six months (2). Neither the overtime nor the additional job will be needed if New Century implements the new system. The current manual system also causes an average of three errors per day, and each error takes about 20 minutes to correct (3). The new system should eliminate those errors.
You estimate that by working full-time you could complete the project in about 12 weeks. Your consulting rate, which New Century agreed to, is $35 per hour (4). If you design the new system as a database application, you can expect to spend about $2,500 for a networked commercial package (5). After the system is operational and the staff is trained, New Century should be able to handle routine maintenance tasks without your assistance.
As an alternative to in-house development, a vertical software package is available for about $12,000. The vendor offers a lease-purchase package requiring a $4,000 down payment, followed by two annual installments of $4,000 each (6). If New Century buys the package, it would take you about four weeks to install, configure, and test it, working full-time (7). The vendor provides free support during the first year of operation, but then New Century must sign a tech supp agreement at an annual cost of $600.(8) Although the package contains many of the features that New Century wants, most of the reports are pre-designed and it would be difficult to modify their layouts.
No matter which approach is selected, New Century probably will need you to provide about 10 hours of initial training and support each week for the first three months of operation (9). After the new system is operational, it will need routine maintenance, file backups, and updating. These tasks will require about four hours per week and can be performed by a clinic staff member. (10) In both cases, the necessary hardware and network installation will cost about $12,500. (11) In your view, the useful life of the system will be about five years, including the year in which the system becomes operational.
Tasks
1. Provide an overview of the proposed system, including costs and benefits, with an explanation of the various cost-benefit types and categories. Complete the following MS7-Cost_Benefit_Table Template. In the template, please calculate the total financial costs or benefits for each categories listed. (Please see the example. For full-time, each year has 52 weeks.)
2. Develop an economic feasibility analysis. Calculate the Net Present Value (assume a discount rate of 10%) and compare the NPV for both alternatives. Use the MS7-Financial_Template (Available on Canvas). You do not need to be prefect for the first two questions, please try your best to complete them.
3. Provide a brief explanation of the various alternative development strategies that should be investigated if development continues, including in-house development and any other possible strategies that you have considered.
Format
Task 1)
Cost or Benefit | Financial Impact | Description of Cost or Benefit |
(1) Eliminate six hours of overtime each week at $15 per hour | Annual savings of 6 hours * $15 hourly rate * 52 weeks = $4160 | Direct, operational, variable, positive benefit |
(2) Eliminate need for additional 40 hours per week at $15 per in six months |
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(3) Eliminate monthly errors. |
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(4) For in-house option: consultants time to develop system |
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(5) For in-house option: Networked commercial database software for in-house development |
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(6) For package option: vertical software package from vendor |
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(7) For package option: consultants time to install, configure, and test vendor package |
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(8) For package option: vendor tech support contract |
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(9) Consultants time to provide initial training and support |
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(10) Clinic staff time to perform maintenance, file backups, and updating |
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(11) Hardware and network installation |
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Task 2)
Complete by using the Microsoft Excel MS7-Financial_Template.
Task 3)
Development Strategy | Overview |
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