Systems Analysis and Design, Tenth Edition End of Chapter Solutions Toolkit Exercises s Questions 1. What is a corporate culture, and why is it important? Describe the culture at a business where you have been employed. A corporate culture is the set of beliefs, rules, traditions, values, and attitudes that define a company and influence its way of doing business. To be successful, a systems analyst must understand, and work within, the corporate culture. For example, if you speak to a group in a company that encourages a highly participative style, you might want to solicit feedback, invite audience comments, or conduct a poll during your presentation. Similarly, if the organization or group is very formal, or very informal, you might want to adjust your style accordingly. (Page 565) 2. Mention five specific techniques you can use to improve your written documents. As the Toolkit suggests, students who have not taken a writing course should consider doing so. The textbook offers 10 specific suggestions for better - written documents, as follows: a. Know your audience. If you are writing for nontechnical readers, use terms that readers will understand. b. Use the active voice whenever possible. For example, the active voice sentence “Tom designed the system,” is better than, “The system was designed by Tom,” which is an example of the passive voice. c. Keep your writing concise and well organized. Use one paragraph to convey a single idea. d. Use an appropriate style. For example, use a conversational tone in informal documents and a business tone in formal documents. e. Use lists. When you must enumerate a number of subtopics related to the same topic, lists are an organized way to present them. f. Use short, easy - to - understand words. Your objective is not to impress your audience with the size of your vocabulary. g. Avoid repeating the same word too often. Use a thesaurus to locate synonyms for frequently repeated words. Many word processing programs include a thesaurus and other tools to help you write better. h. Check your spelling. You can use the spell checker in your word processing program to check your spelling, but remember that a spell checker is a tool that identifies only words that do not appear in the program’s dictionary. For example, a spell checker will not identify instances when you use the word “their,” instead of the word “there.” i. Check your grammar. Most word processing programs include a grammar checker, which is a tool that can detect usage problems and offer suggestions. When you use a grammar checker, you can set various options to match the level and style of the writing and to highlight or ignore certain types of usage. For example, you can set the grammar checker in Microsoft Word to check grammar rules only, or you can configure it to check writing style, including gender - specific words, sentence fragments, and passive sentences j. Review your work carefully. Then double - check it for spelling, grammatical, and typographical mistakes. If possible, ask a colleague to proofread your work and suggest. (Pages 565 - 566 ) 3. What techniques can help e - mail communications? Provide specific examples. Students should realize that most companies now use e - mail as the standard form of written correspondence. E - mail usually is less formal than other written communication, but good grammar, spelling, and clear writing always are important. Remind students that things said might be forgotten in a short time, but things written — with our name on them — might be around for a long, long, time. Although e - mail usually is more conversational, point out that e - mail messages often are forwarded to other recipients or groups, and they are as important as any other form of written communication. If you are a frequent e - mail user, you can create distribution lists that include names of recipients and their e - mail addresses. Many e - mail programs use formatting features such as bold, italic, and underlining, and spell check your messages before you send them. (Pages 566 - 567 ) 4. Create a one - page document with at least five grammatical errors. Then run the Microsoft Word grammar checker and describe the results. This should be easy and fun. If students need some examples to get started, you can suggest common errors such as :  V ariations of to, too, and two  Confusion between t hat and which  Misuse of i ts and it’s  Improper use of their and there ( Page 566 ) 5. When preparing an oral presentation, what six tasks should you perform? When preparing an oral presentation, you must define the audience, define the objectives for your presentation, organize the presentation, define any technical terms you will use, and prepare your presentation aids. After you have done these things, you must practice, practice, and practice some more. (Page 572 - 573 ) 6. When you organize a presentation, what three stages do you plan? You should plan your presentation in three stages: an introduction to let the audience know who you are and the purpose of the presentation; the delivery of the information in a logical, understandable manner; and a summation that recaps the main points and asks for questions. (Page 573 ) 7. Why are visual aids important? Give at least three examples of different types of visual aids, and explain how you would use each type in a presentation. Visual aids are important because we learn best by what we see. Visual aids help the audience follow the logic of your presentation, hold their attention, and can direct audience attention away from you, which is helpful if you are nervous during the presentation. Students might suggest a variety of specific situations, but three basic examples are as follows: a. A bulleted list of important points. This will serve as an agenda and will help keep you on track during the presentation. b. Flip charts, overhead transparencies, slides, films, and videotapes. These can increase audience interest and highlight your key points. c. Presentation graphics slides with sound and animation. You can use special effects to “dress up” your presentation, introduce some humor or a change of pace, or deliver a powerful, dynamic communication. (Page 573 ) 8. Based on your own experience, what tends to make a PowerPoint presentation stronger or weaker? Provide specific examples. Answers will vary . H opefully, students will mention many of the tips and guidelines described in the text material. It would be interesting to go further, and ask your class about actual events, disruptions, or surprises that they saw as viewers . (Pages 573 - 574) 9. Name three specific strategies you can use if you get nervous during a presentation. The most important thing is to try and control the environment, instead of letting it control you. If you are most nervous when the audience is looking at you, use visual aids to direct their attention away. If your hands shake, do not hold your notes. If you are delivering a computer slide show, use the keyboard instead of the mouse. Try to speak in a strong, clear voice, and not to let your nervousness distract you. (Page 576 ) 10. Why is practice so important when preparing a presentation? Provide a specific example from your own experience . There are three ways to become a better speaker: practice, practice, and practice. If you rehearse your presentation, you will gain confidence, get a better idea of timing, and be less likely to need a script or detailed notes. With practice, your presentation will be more spontaneous and your audience will be more interested in what you have to say when you are not reading it from a set of notes. (Page s 575; 577 ) Discussion Topics 1. Most people agree that business e - mail can be more conversational than formal written documents, but even e - mail has its limits. As a manager, what guidance would you give people regarding e - mail style and usage? Answers will be influenced by the student’s personal experience with e - mail, especially in business situations. Social e - mail has developed its own usage, abbreviations, and slang, such as “btw” that stands for “by the way” and the use of emoticons and smiley faces. In a business situation, these usages might or might not be appropriate. Just as dress codes vary from company to company, so do e - mail usage norms. It should be interesting to have students explain and defend what they see as an appropriate set of rules. It is important for students to know that, as employees, they are judged by the written communications they send. For this reason, all communications, including e - mail, should be carefully spell checked and have a professional appearance. 2. Is it possible to overcommunicate? For example, in Chapter 4 you learned to avoid leading questions, which might suggest an answer. Can you think of other examples, like newspaper headlines, where “less is more”? Students should be able to think of many examples. To get the ball rolling, you might suggest examples such as giving clear, concise directions to a lost traveler; preparing executive summaries for a busy manager; and writing a slogan for a bumper sticker. In a well - known example, a person says “I asked him what time it was, and he explained how to build a clock.” 3. Many articles stress the importance of body language. Think of examples where you noticed a person’s body language. Did it relate to something they were trying to communicate — or something they were trying not to communicate? Many studies have been done on this topic, and you might want to use some examples available on the Internet. For example, an interesting site that offers information and insights into non - verbal communication is available at: http://changingminds.org/techniques/body/body_language.htm . 4. Should e - mail monitoring by an employer always be permissible, never permissible, or does the answer depend on specific factors? If so, what are they? Students typically have their own views on this topic, but it might be interesting to have them perform some Internet research and be exposed to various opinions that can be discussed and analyzed in class. In recent years, news accounts have described various situations where employers monitored employee e - mail and Internet usage. In some cases, employees were disciplined or terminated. To many students, a critical factor will be whether or not the employees were forewarned of the monitoring practice. In any case, this topic should make for a lively debate. Projects 1. The Elements of Style by William Strunk, Jr. and E. B. White is a popular reference manual for proper English usage. The book identifies many words and phrases that are commonly misused, including between and among, affect and effect, different from and different than, like and as, and infer and imply. Review The Elements of Style or another source, and explain how these words should be used. This project will be an eye - opener for students who are unaware of the proper usage. You could introduce the assignment with a list that mixes correct and incorrect examples, using terms other than the ones listed above. Some additional examples might include “its and “it’s,” “who” and “whom,” and “that” and “which.” Also see the suggested answer to Question 4 above. 2. Using Microsoft PowerPoint or another program, prepare a presentation on “How to Prepare an Effective Slide Presentation.” Assume that your audience is familiar with presentation software, but has no formal training. Students should be able create an effective presentation of the material on pages 572 - 575. Remind students that preparing an effective slide presentation requires considerable time and effort. Also remind them that the first step (and perhaps the most important) is to prepare an overall outline that will be the foundation of the presentation. It is essential to focus on the content and structure of your presentation before you consider visual issues. Other guidelines include the following:  Remember that a fine line exists between providing too little information and too much.  Display one topic per slide, and try to follow the rule often called the 7 by 7 rule : no more than seven items per slide, and no more than seven words per item. Some presenters believe that a 6 by 6 rule is even more effective.  When displaying a list of items, consider using a series of slides to add each point dependently, especially if you want to focus attention on the item being discussed.  Use bullets rather than numbers, unless you are showing a specific sequence or order.  Choose easily readable fonts. Use sans serif styles, such as Arial, for all body text. If you do use a serif style (such as Times Roman) apply it only in titles.  Use appropriate point sizes for titles and body text. Your goal is to prepare slides that are readable and visually attractive. Although point size selection depends on individual judgment and experience, here are some suggestions to get you started: for titles, try either 36 - or 40 - point fonts; for body text, 32 - or 24 - point fonts usually work well.  Select special effects carefully — too many graphics, colors, sounds, or other special effects will distract your audience.  You can include tables or graphics, but keep them simple and easy to understand. Also, you can use a special effect, such as bold, italics, underlining, or a different color, to highlight an important word or phrase.  Strive for a consistent look and feel among your slides, and position visual elements in the same place on each slide. You should use a master template to assure uniformity. Choose colors carefully, and keep them consistent. Light letters on a dark background are easiest to read.  Be sure to check spelling and grammar!  During the presentation, do not read your slides to the audience. They can read the slides on their own. Your slide presentation is an outline that provides structure and emphasis — it is not the presentation itself. 3. As a training manual writer, choose a simple hardware or software task and write a two - or three - paragraph description of how to perform the task. Then use your word processing software to check the readability statistics. Try to keep the Flesch Reading Ease score above 60 and the Flesch - Kincaid Grade Level score to 8.0 or less. Many students will not have experience in “writing down” to a certain level. It would be helpful to provide students with an example of an overly complex paragraph that fails the readability test — then show them how to edit it to meet the objectives. You can show this by using the following examples: Example 1: “When it is essential to interact effectively with your counterparts, you should attempt to envision their understanding of the issues.” Example 2: “When you need to work well with other people, try to see issues from their viewpoint.” Microsoft suggests that for most standard documents, you should aim for a Flesch Reading Ease Score of at least 60 - 70, and a grade level of no more than 7.0 to 8.0. The first example has a Flesch Reading Ease Score of 34.2 and a grade level of 12, which is too high for most training manuals. The second example, which says essentially the same thing, has a Flesch Reading Ease Score of 84.8 and was assessed at grade level 5.4, which should make it easy for anyone to read and understand . 4. View at least three examples of public speaking. You can investigate TV network news broadcasts, C - SPAN, or any other source. Describe each speaker’s gestures, expressions, voice levels, inflections, timing, eye contact, and effectiveness. You could allow students free choice as to the speakers, or you (or they) could nominate people and have a drawing to assign specific students to specific speakers. In any case, the objective is to have students identify certain characteristics and rate the effectiveness. Television newscasts are especially interesting when they involve the interaction among a team of newscasters. Or, you can allow examples from movies or TV shows. For example, in the views of many observers and delighted fans, Archie Bunker’s mannerisms, such as rolling his eyes when he was totally frustrated with Edith, spoke volumes. Systems Analysis and Design, Tenth Edition End of Chapter Solutions Toolkit Exercises s Questions 1. Define CASE, CASE tools, and a CASE environment. CASE stands for computer - aided systems engineering. CASE tools are software programs that system developers use to help them design and construct information systems. A CASE environment is more than a set of CASE tools — it includes any use of computer - based support in the software development process. (Page 582 ) 2. Explain the difference between procedural and non - procedural languages. Procedural languages, such as COBOL, require a programmer to create code statements for each processing step. In contrast, modern languages such as C++ and Java are called non - procedural, or event - driven, because instead of writing a series of dependent instructions, a programmer defines the actions that the program must perform when certain events occur. (Page 585 ) 3. Describe 4GLs and their characteristics. 4GLs, or fourth - generation languages, are object - oriented programming languages (OOPL) that are especially valuable in implementing an object - oriented system design. 4GLs are important components of a fourth - generation environment. (Page 585 ) 4. Define a repository, and explain its role in the systems development process. A repository is a database that serves as a central storage location for all information about the system being developed. Once a data element has been defined in the repository, it can be accessed and used by processes and other information systems. For example, a sales processing, accounts receivable, and shipping system all might require data about customers. After a CUSTOMER data element is entered in the repository, all three systems can share a consistent, up - to - date definition. When you define a data element in the repository, you can assign a data type and format, a range of acceptable values, and one or more aliases, or alternative names for data elements. (Page 586 ) 5. What are forward and reverse engineering tools, and how are they used? Forward engineering tools can translate business processes and functions into applications. Some CASE tools allow you to build the system either by editing objects and code directly, or by modifying graphical representations such as DFDs and UML diagrams. Reverse engineering tools allow you to examine an existing application and break it down into a series of diagrams, structure charts, and, in some cases, source code. (Page 587 ) 6. Provide an example of an application generator and a screen generator. An application generator, also called a code generator, allows you to develop computer programs rapidly by translating a logical model directly into code. For example, Telelogic’s Tau Modeler uses information stored in the data repository to generate applications in languages such as Java, C++, and Visual Basic. A screen generator, or form painter, is an interactive tool that helps you design a custom interface, create screen forms, and handle data entry format and procedures. The screen generator allows you to control how the screen will display captions, data fields, data, and other visual attributes. Modern CASE tools usually include a screen generator that interacts with the data dictionary. An example is Gillani Software’s FourGen® CASE tool set, which includes a form painter and a code generator. (Pages 58 7 - 588 ) 7. How is a report generator used, and what is a mock - up report? A report generator, also called a report writer, is a tool for designing formatted reports rapidly. Using a report generator, you can modify a report easily at any stage of the design process. When you are satisfied with the report layout, the report writer creates a report definition and program code that actually produces the report. You also can input sample field values to create a mock - up report for users to review and approve. (Page 588 ) 8. Explain the concept of an integrated development environment and provide two examples of IDEs. An integrated development environment (IDE) uses a built - in CASE tool that a software vendor includes to make it easier to plan, construct, and maintain a specific software product. Examples of IDEs include Oracle Designer and Visual Studio .NET. Oracle Designer, which is packaged with Oracle’s application software, models business processes, data entities, and relationships — and can transform these models into designs that generate complete applications. Microsoft’s Visual Studio .NET includes various application development tools that are specifically designed to support Microsoft’s Web - based application development strategy. (Page 589 ) 9. Explain the concept of an application life cycle management environment and provide two examples of ALMs. Although no standard definition exists, ALM generally refers to a start - to - finish approach to planning, designing, developing, deploying, managing, and maintaining an information system. According to Microsoft, Visual Studio 2012 offers ALM tools and processes that can help an organization speed up systems development and reduce costs. IBM also stresses the ALM concept using RationalWorkbench® . IBM states that Rational Workbench® spans systems engineering, project management, software development, and quality management. (Pages 589 - 590) 10. What is the emerging role of object - oriented analysis and design methods? Agile methods? Although structured analysis continues to be a dominant methodology, object - oriented analysis and design (OOAD) is gaining popularity. Using an object - oriented approach, a developer creates objects called actors, which represent the human users who will interact with the system. This approach allows the developer to visualize a system through the eyes of the people who will work with it. A major trend toward objected - oriented languages has spurred interest in O - O CASE tools, which can provide a seamless development sequence that includes planning, analysis, design, and actual coding. Other attractive features of an O - O approach include modular design and reusable code that easily can be combined and reassembled into new components. This approach can provide cost reduction and faster development times. The most recent trend is the popularity of agile methods. Chapter 11 includes a detailed description of an agile project, including the iterative cycles and the intense contact between developers and users. Agile developers use a wide range of modeling tools, including CASE tools. However, many agile teams find that simple whiteboard sketching works best for them, as shown in Figure TK 2 - 20. Although it is difficult to predict the future, it seems clear that CASE tools will continue to evolve and become more powerful. At the same time, system developers will sometimes choose simpler, low - tech methods and techniques as modeling tools. (Page s 593 - 595 ) Discussion Topics 1. Would a systems analyst be better off in a position where he or she works with an IDE, or where generic CASE tools are used? Explain your answer. Answers will vary. As the textbook points out, in a specific software environment, an integrated development tool is highly effective because it is an integral part of the vendor’s software package. Each IDE, however, is different and requires a learning curve and skills that might or might not be readily transferable. In contrast, non - specific CASE tools such as Visible Analyst or System Architect can be used in any development environment. Given the dynamic changes in IT, a systems analyst should seek to learn as many development and CASE tools as possible. 2. Visit the Web sites for Rational System Architect and Visible Analyst. If you could choose only one of these products, which one would you select, and why? Both firms offer powerful, user - friendly CASE tools. You might suggest a common checklist for product comparisons, including features, price, ease of learning, availability of online tutorials, price, and overall “look and feel.” 3. If you were a programmer, would you prefer to work with procedural or non - procedural languages? Explain your reasons. Answers will vary. Students with some programming experience may have personal reasons to support their answers; others will answer based on impressions they gain in the textbook and in this part of the Toolkit. The textbook points out that traditional, procedural languages use structural rules to organize and control program execution, while non - procedural languages are essentially event - driven. Both types, however, require specific rules for syntax and coding. 4. Some analysts believe that if the trend toward more powerful CASE tools continues, many tedious development tasks might be performed automatically. Is there a limit to the capabilities of future CASE software? Could a complete information system be designed by describing a business operation and specifying certain inputs and outputs? Explain your answer. Given the rapid pace of technology, it is wise never to say “never.” Currently, powerful tools such as Rational System Architect and Visible Analyst enable developers to construct working mode ls that can serve as prototype s for a new system. Also consider the fact that tools such as Visible Analyst allow you to engage in strategic planning by creating a series of statements and functional decomposition diagrams , which are explained as follows: Planning, Business Planning Functional decomposition diagrams (FDDs) give you the ability to do high - level planning of business functions diagrammatically while concurrently populating the repository. You can enter business functions (hereafter called simply functions) that you define onto diagrams and break them down into successively finer gradations. At some point, one that is entirely up to you, you can break down functions into processes . These processes are semantically equal to the processes that appear on data flow dia grams. (Emphasis added.) From where we already are, it might only be a short step to a CASE tool that could go from a strategic plan, to an FDD, to a set of processes, to application structure and code. Stay tuned. Projects 1. Search the Internet for a simple, user - friendly CASE tool that you would recommend for your school’s computer lab. Visit the vendor’s site and learn all you can about the product. Write a brief report that describes your experience. You might want to provide a standard checklist of features for students to investigate. Many CASE products offer demonstration versions, and students should be encouraged to experiment with these if possible. 2. Visit www.visual - paradigm.com. Locate and download the Community Edition, which is free, or a 30 - day trial edition. Experiment with the program and write a brief report that describes your experience. Students should have no trouble locating and downloading the software. This project might be a good one for a group task, with members acting as a real - world evaluation team. 3. Search the Internet and locate an example of a screen generator. Visit the vendor’s site and learn all you can about the product. Write a brief report that describes your experience. Students can search the Internet using the phrase “screen generator” to locate examples of products to investigate. You might want to provide a standard checklist of features for students to investigate. Some screen generators offer demonstration versions, and students should be encouraged to experiment with these if possible. 4. Go to the site shown in Figure TK B - 8 on page 588 and learn more about Gillani’s FourGen CASE Tools. Write a brief report summarizing your findings. Answers will vary. Students should have no trouble learning about these products. Like Project 2, this assignment might be a good one for a group task, with members acting as a real - world evaluation team. The instructor also might require a brief PowerPoint presentation, using the skills learned in Part A of the Systems Analyst’s Toolkit. Systems Analysis and Design, Tenth Edition End of Chapter Solutions Toolkit Exercises s Questions 1. How do you know if a project is economically feasible? Why is TCO important? A project is economically feasible if the future benefits outweigh the estimated costs of developing or acquiring the new system. A systems analyst determines economic feasibility by calculating a project’s costs and benefits. The analyst then uses various tools and techniques to perform a cost - benefit analysis, which often is called a feasibility study. A project’s total cost of ownership (TCO) includes ongoing support and maintenance costs, as well as acquisition costs. It is important to stress that after - acquisition costs are s u bstantial, and often are under - estimated. For example, HP found that the majority of total IT costs occur after the purchase, and that nearly half the costs lie outside the IT department’s budget. HP also noted that the most significant cost factor is user support, including peer - to - peer assistance that rarely is documented or measured. (Page 6 02 ) 2. Describe each cost classification and include two examples. Costs can be classified as tangible or intangible, direct or indirect, fixed or variable, and developmental or operational. Tangible costs have a specific dollar value. Examples of tangible costs include employee salaries and hardware. Intangible costs have a dollar value that cannot be calculated easily. Examples of intangible costs include customer dissatisfaction and reduced information availability. If an analyst examines an intangible cost carefully, it might be possible to estimate a dollar value. Direct costs are costs associated with the development of a specific system. Examples of direct costs include the salaries of project team members who develop the new system. In contrast, indirect costs, such as the monthly rental for a copy machine or insurance expense, cannot be attributed to the development of a particular system. Indirect costs also are called overhead expenses. Fixed costs are relatively constant and do not depend on a level of activity or effort. Fixed costs might include salaries and hardware rental charges. Variable costs, such as the costs of printer paper and supplies, depend on a level of activity. Developmental costs are incurred when the system first is developed or acquired, such as salaries. Operational costs are incurred after the system is implemented and continue while the system is in use. Examples include system maintenance, ongoing training, and annual software license fees. Costs can fall into more than one category. For example, overtime pay for clerical help during the systems analysis phase might be developmental, variable, and direct. A monthly fee for maintaining the company’s Web site might be operational, fixed, and indirect. (Pages 6 03 - 604 ) 3. What are four chargeback methods? In your view, is one more “fair” than another? A chargeback method is a method of allocating the indirect costs of running the IT department. Most organizations adopt one of four chargeback approaches: no charge; fixed charge; variable charge based on resource usage; or variable charge based on volume. a. The no charge approach treats IT department services as a necessary cost of doing business that benefits the entire company, rather than a particular department. b. The fixed charge method divides indirect IT costs among all the other departments in the form of a fixed monthly charge. c. The method called variable charge based on resource usage assigns costs based on the resources used by an information system. Resources might include CPU time, printer use, or a combination of similar factors. With a variable charge based on volume approach, the indirect IT department costs are allocated to other departments based on user - oriented activity, such as the number of transactions. There is no single answer to the second part of the question, regarding what is “fair.” Student answers might depend on their own business experience (or lack of it). In any case, the reasoning is the important thing, and whether the student has a grasp of the differences. (Page 604 ) 4. Describe each benefit classification, and include two examples. Benefits are classified the same way as costs — tangible or intangible, fixed or variable, and direct or indirect — and the same examples would apply. For instance, costs can include salaries, equipment, and other resources, and a reduction in these areas can be calculated as a benefit. Benefits also can be classified as positive benefits or cost - avoidance benefits. Positive benefits are increased revenues, lower costs, or improved services that can be attributed to the new information system. Examples of positive benefits include reduced operating expenses, faster service to customers, and better inventory management. Cost - avoidance benefits are expenses that would be necessary if the new system were not installed. Examples of cost - avoidance benefits include handling the work with current staff instead of hiring more people, or not having to replace existing hardware and software. (Page 6 05 ) 5. What formula do you use to calculate the payback period? Payback analysis compares the cumulative costs and benefits of a proposed information system to determine how long it will take for the system to pay for itself. This period of time is called the payback period. Cumulative costs include developmental and operational expenses, and benefits include all tangible benefits. A payback period is the time it takes for the accumulated benefits of an information system to equal the accumulated costs of developing and operating the system. You can use a chart or a spreadsheet to calculate the payback period. Either way, to calculate the payback period, you must perform the following steps: 1) Determine the initial development cost of the system. 2) Estimate annual benefits. 3) Determine annual operating costs. 4) Find the payback period by comparing total development and operating costs to the accumulated value of the benefits produced by the system. When using a graph, such as the example shown in Figure TK C - 6 on page 6 07 , note that the payback period is not the point when current benefits equal current costs, where the two lines cross. Instead, the payback period compares accumulated costs and benefits. If you graph current costs and benefits, the payback period corresponds to the time at which the areas under the two curves are equal. If you use a spreadsheet program to calculate the cumulative cost - benefit data, as shown in the examples in Figure TK C - 8 on page 6 09 , you can estimate the point in time where the cumulative benefits exceed the cumulative costs. Note that year 0 (zero) is the year in which systems development begins. (Pages 6 06 ) 6. What formula do you use to calculate ROI? Return on investment (ROI) is a percentage rate that measures profitability by comparing the total net benefits (the return) received from a project to the total costs (the investment) of the project. Return on investment analysis considers costs and benefits over a longer time span than payback analysis, usually a period of five to seven years. In many organizations, projects must meet or exceed a minimum ROI, which is an estimate of the return that the firm would receive from investments, such as treasury bonds, or it can be a higher rate that the company requires for all new projects. ROI is calculated by using the formula: ROI = (Total Benefits – Total Costs) / Total Costs . For example, if Total Benefits = $213,000, and Total Costs = $181,000, then ROI would be calculated as follows: ROI = (Total Benefits – Total Costs) / Total Costs ROI = (213,000 – 181,000) / 181,000 ROI = 32,000 / 181,000 ROI = 0.177 ROI = 17.7% (Pages 6 10 ) 7. Would the formulas in questions 5 and 6 also apply to heavy equipment, such as a bulldozer? Why or why not? Payback and ROI analysis can be applied to any object or decision. For example, a construction firm might analyze whether it would be less expensive to lease heavy equipment, rather than buying it. An individual might decide to lease a car, because he or she found it would be less expensive, and so on. The principles are the same, and can be used in any situation. (Pages 605 - 616) 8. Define the term present value , and provide an example. Present value analysis is a technique that adjusts all future costs and benefits of a proposed information system to a current value, called the present value. By taking into account the timing of costs and benefits, this technique compares all costs and benefit items on an equal yardstick, regardless of whether they occur now or five years from now. The present value concept is based on the time value of money. To perform present value analysis, you must select a specified interest rate, called a discount rate that represents a safe investment return that a company might expect from investments, such as bonds. Many companies require a rate of return that is even higher than the discount rate because there is a degree of risk in any project compared to investing in a bond. When you time - adjust the cost and benefit figures, you multiply each of the projected benefits and costs by the proper present value factor, which depends on when the cost will be incurred or the benefit will be received. Then you sum all the time - adjusted benefits and the time - adjusted costs and calculate the net present value (NPV) of the project, which is the total present value of the benefits minus the total present value of the costs. To help you perform present value analysis, adjustment factors for various interest rates and various numbers of years are calculated and printed in tables called present value tables. (Pages 6 12 ) 9. What is the meaning of the phrase, time value of money ? The phrase, time value of money, refers to the concept that a dollar that you have today is worth more than a dollar that you do not receive until one year from today. The value of the dollar you have now is greater because you can invest it and it will grow in value during the year. For example, if you receive $100 now, you might invest it in a mutual fund that has an annual return of 8 percent. One year from now, you will have $108 instead of $100. The opposite also is true. If you must pay an expense, it will be less costly to pay it a year from now. The time value of money concept is important to a systems analyst who must evaluate a proposed project that involves various costs and benefits that occur at future times. When the analyst performs a present value analysis for the project, he or she is determining the time value of money. (Page 6 12 ) 10. Why is it difficult to assign a dollar figure to an intangible cost? Can it ever be done? Explain your answer, and provide an example. Intangible costs are costs whose dollar value cannot be calculated easily. The cost of customer dissatisfaction, lower employee morale, and reduced information availability are examples of intangible costs. If the analyst examines an intangible item carefully, however, it sometimes is possible to estimate a dollar value. For example, users might dislike a system because it is difficult to learn. Their dissatisfaction is an intangible cost, but if it translates into an increase in errors that must be corrected, you probably could assign a tangible dollar cost. You should try to work with tangible costs whenever possible. (Page 6 03 ) Discussion Topics 1. Suppose your supervisor asks you to inflate the benefit figures for an IT proposal in order to raise the priority of his or her favorite project. Would this be ethical? Does internal cost - benefit analysis affect company shareholders? Why or why not? Hopefully, students will be aware that public awareness of internal corporate accounting has increased enormously in recent years. In a number of high - profile cases, corporate