Software Purchase Option: Cost-Benefit Analysis and Recommendation

The assignment content presents a cost-benefit analysis of two options for improving the business process of an organization: purchasing a software package and developing in-house software. The analysis shows that the purchase of the software package is the best solution, as it provides a higher return on investment (ROI) compared to the costs of developing and maintaining in-house software. The cumulative net benefits/costs for both options are presented, along with the recommendation to adopt the software package option. The assignment references several sources to support its findings.

Running head: INFORMATION SYSTEM PLANNING AND ANALYSING
Information System and Planning Analysis
Name of the Student
Name of the University
Author’s Note

1
INFORMATION SYSTEM PLANNING AND ANALYSING
Table of Contents
1. Context Diagram for CBMS............................................................................................2
2. Level 0 and level 1 DFD diagram for CBMS..................................................................3
3. Decomposition of Weekly report into data elements......................................................5
4. System Dictionary for the Bike Wholesale Price and Customer.....................................5
Process Description.............................................................................................................6
5. Decision Table and its associated decision tree for the calculation of the bike sale price
.........................................................................................................................................................6
6. Identification of the value and cost for the available options..........................................8
7. Comparison of the options...............................................................................................9
i. Payback Analysis..........................................................................................................9
ii. ROI analysis..............................................................................................................10
Recommendation of the adoption of the option................................................................12
References..........................................................................................................................13

2
INFORMATION SYSTEM PLANNING AND ANALYSING
Data Flow Diagram and Dictionary
1. Context Diagram for CBMS
Figure 1: Context level DFD
(Source: Created by author)

3
INFORMATION SYSTEM PLANNING AND ANALYSING
2. Level 0 and level 1 DFD diagram for CBMS
Figure 2: Level 0 DFD
(Source: created by author)

4
INFORMATION SYSTEM PLANNING AND ANALYSING
Figure 3: Level 1 DFD
(Source: created by author)

5
INFORMATION SYSTEM PLANNING AND ANALYSING
3. Decomposition of Weekly report into data elements
Sales Report = Sale ID + date + shop assistant’s ID + customer’s ID + model + whole
sale price + sale price
Sales Cost Report = Satff’s ID + Family Name + First name + Weekday + Satuarday +
Sunday hours + {Total salary for week}
Operational Summary = {Total bike being sold} + {Total weekday hours} + {Total
Stauarday hours} + {Total Sunday hours} + {Profit of week}
4. System Dictionary for the Bike Wholesale Price and Customer
Data Element Name Bike Wholesale Price Customer
Type & Length Text/ String, 6 Text/ String, 25
Output Format X(6) OR XXX685 X(25)
Prompt/ Column Heading Wholesale_Price Customer
Source - -
Acceptable Values Characters are not acceptable
and float value upto two
decimal is accepted
Digits are not acceptable
since it is the name
Other Validations It is required to be added the
currency notation
It is required to be converted
to Sentence Case
Description/ Comments Decimal value upto two
values is taken
It is the name of the customer

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INFORMATION SYSTEM PLANNING AND ANALYSING
Process Description
5. Decision Table and its associated decision tree for the calculation of the bike
sale price
RULES A B C D
If the customer
is a university
student, after
presenting
student ID card,
he/she will
receive
5% discount for
any product.
Y - Y -
A new customer
enjoys a 10%
discount in their
first transaction.
- Y - -
If the customer
purchases
multiple bikes,
then the cheapest
bike can be 75%
- - Y -

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INFORMATION SYSTEM PLANNING AND ANALYSING
of the original
price
Any bike with a
price equals or
over $200, can
have a $5 price
reduction
Y - - Y
Decision Tree
Figure 4: Decision tree for the sales price calculation process
(Source: created by author)

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INFORMATION SYSTEM PLANNING AND ANALYSING
Development Strategies – Cost benefits Analysis
6. Identification of the value and cost for the available options
Cost or Benefit Financial impact
15000 Cost of development, install and configure
1000 Loading existing data
8000 Purchase of software
1500 Install and configure
2500 Load existing data
1000 Additional hardware cost

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INFORMATION SYSTEM PLANNING AND ANALYSING
7. Comparison of the options
i. Payback Analysis
Benefits of option Year 1 Year 2 Year 3 Year 4 Year 5
Staff savings 100,000$ 100,000$ 100,000$ 100,000$ 100,000$
Improved buying practice 25,000$ 25,000$ 20,000$ 20,000$ 15,000$
Improved service 15,000$ 15,000$ 15,000$ 20,000$ 25,000$
Total Benefits 140,000$ 140,000$ 135,000$ 140,000$ 140,000$ 695,000$
Costs of option Year 1 Year 2 Year 3 Year 4 Year 5
Development costs 8,000$ -$ -$ -$ -$
Additional hardware 2,500$ -$ -$ -$ -$
Operation costs 1,500$ -$ -$ -$ -$
User time during development -$ -$ -$ -$ -$
Maintenance costs 2,500$ 3,000$ 3,000$ 3,000$ 3,000$
Total Costs 14,500$ 3,000$ 3,000$ 3,000$ 3,000$ 26,500$
Net benefits/costs 125,500$ 137,000$ 132,000$ 137,000$ 137,000$
Cumulative benefits/costs 125,500$ 262,500$ 394,500$ 531,500$ 668,500$
Break Even Period 2.31325301
Payback Analysis
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
1 2 3 4 5Year
Payback Analysis
Net benefits/costs
Cumulative
benefits/costs

10
INFORMATION SYSTEM PLANNING AND ANALYSING
ii. ROI analysis
Cost Benefit Analysis using Present Value
Benefits of option Year 1 Year 2 Year 3 Year 4 Year 5
Staff savings $
100,000
$
100,000
$
100,000
$
100,000
$
100,000
Improved buying practice $
25,000
$
25,000
$
20,000
$
20,000
$
15,000
Improved service $
15,000
$
15,000
$
15,000
$
20,000
$
25,000
Total Benefits $
140,000
$
140,000
$
135,000
$
140,000
$
140,000
Costs of option Year 1 Year 2 Year 3 Year 4 Year 5
Development costs $
8,000
$ - $ - $ - $ -
Additional hardware $
1,000
$ - $ - $ - $ -
Operation costs $
2,500
$
2,500
$
2,500
$
2,500
$
2,500
User time during
development
$ - $ - $ - $ - $ -

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INFORMATION SYSTEM PLANNING AND ANALYSING
Maintenance costs $
1,500
$
2,500
$
2,500
$
2,500
$
2,500
Total Costs $
13,000
$
5,000
$
5,000
$
5,000
$
5,000
Net benefits/costs $
127,000
$
135,000
$
130,000
$
135,000
$
135,000
Cumulative benefits/costs $
127,000
$
262,000
$
392,000
$
527,000
$
662,000
Net benefits/cost (NPV @
5%)
$120,952.3
8
$122,448.9
8
$112,298.8
9
$111,064.8
3
$105,776.0
3
Cumulative NPV $120,952.3
8
$243,401.3
6
$355,700.2
5
$466,765.0
8
$572,541.1
1
Cost Benefit Analysis using Present Value
Benefits of option Year 1 Year 2 Year 3 Year 4 Year 5
Staff savings $
100,000
$ 100,000 $ 100,000 $ 100,000 $ 100,000
Improved buying
practice
$
25,000
$ 25,000 $ 20,000 $ 20,000 $ 15,000
Improved service $ $ 15,000 $ 15,000 $ 20,000 $ 25,000

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INFORMATION SYSTEM PLANNING AND ANALYSING
15,000
Total Benefits $
140,000
$ 140,000 $ 135,000 $ 140,000 $ 140,000
Costs of option Year 1 Year 2 Year 3 Year 4 Year 5
Development
costs
$
8,000
$ - $ - $ - $ -
Additional
hardware
$
1,000
$ - $ - $ - $ -
Operation costs $
2,500
$ 2,500 $ 2,500 $ 2,500 $ 2,500
User time during
development
$ - $ - $ - $ - $ -
Maintenance
costs
$
1,500
$ 2,500 $ 2,500 $ 2,500 $ 2,500
Total Costs $
13,000
$ 5,000 $ 5,000 $ 5,000 $ 5,000
Net benefits/costs $
127,000
$ 135,000 $ 130,000 $ 135,000 $ 135,000
Cumulative
benefits/costs
$
127,000
$ 262,000 $ 392,000 $ 527,000 $ 662,000