Evaluate Options Flashcards
How do you evaluate options?
The GAP analysis would have produced some ideas for improvements.
Review the list of options and evaluate against aspects of feasibility
Reduce to a shortlist
Evaluate the shortlist against aspects of feasibilities in more detail
Choose the options for the business case.
What are the aspects of feasibility?
3 dimensions are considered:
Business - strategic, cultural and organisational fit, competencies
Financial - budget, funds available or can be borrowed, acceptable cashflow, ROI
Technical - technical skills, systems compatibility, proven, NFRs
What are the 4 techniques that can be used to evaluate options?
SWOT
PESTLE
Feasibility analysis
Force Field analysis
What is a mandatory option to always include?
The Do-Nothing option.
Explain the impact and risks of doing nothing.
What do you do once the feasibility analysis has been done?
I list costs, benefits, risks and impact for each shortlisted option.
List type of costs
Tangible costs:
hardware, software, staff training/retraining
Intangible costs:
recruitment, disruption/loss of productivity
List types of benefits
Tangible benefits can be quantified with data:
staff savings, improved speed of working
Avoided costs:
the savings anticipates future savings. IE: regular oil change in a car will prevent replacing the engine in future.
Intangible benefits cannot be quantified with data:
increased employee/customer satisfaction, better MI
What is a CBA?
a financial appraisal of the recommended solution.
It compares the financial and tangible costs and benefits to see whether a project is worth undertaking.
a CBA is part of an investment appraisal activity.
What are the 3 methods to present an investment appraisal?
Payback
NPV
IRR
Explain the Payback method
we compare the expected costs and benefits year on year until we get to the benefits exceeding the costs or when breakeven occurs.
Explain the NPV method
Net Present Value
we also compare the expected costs and benefits however we also factor in the time value of money.
Money spent today won’t have the same value next year.
we use the Discounted Cash Flow provided by an accountant for each year then add all the DCFs to find the NPV or the overall value of the project.
Explain the IRR method
We stand the DCF/NPV calculation on its head. We ask what interest rate do we need to get an NPV of 0 after year 4.
This method is also used to compare different projects and assess which one is the most viable.
Explain the use of a business case
A business case provides justification for undertaking a project, programme or portfolio. It evaluates the benefit, cost and risk of alternative options and provides a rationale for the preferred solution.
List the business case content
Introduction Background Executive summary List of options with their costs, benefits, risks and impact. Do nothing option and preferred option. Benefits and costs descriptions Investment appraisal Conclusion and recommendation Appendix + project plan and schedule
Which type of investment appraisal should we use for what project?
Payback - pros: short term projects, need immediate result and ROI, cons: tbc
NPV - pros: tbc, cons: not good when comparing project of different sizes
IRR - pros: tbc, cons: doesn’t consider the project size, duration and costs.
