Transcript Unit 10.2, Lesson 2-7 Legal Aspects of Operating a Business

FEASIBILITY STUDY
Aspects of Operating a Business
Types of Deals
• Contract
– Contracts include
three parts:
• Serious and definite
offer
• A consideration,
something for which a
person is bargaining.
• A serious acceptance of
the offer.
• Agreement
– A non-legally binding
deal, often with few set
details, and often is
not considered official.
Legal feasibility
copyrights, anti-trust laws (systems
that share data across
organizations), financial reporting
requirements, contractual
obligations, software ownership,
outsourcing arrangements, etc.
Business Permits and Licenses
• Special permission from the government is
needed for some businesses. Often, you need
special training and have to take a test. See
your lawyer to find out if you must:
– Just register with the local or state government.
“Hello…I’m in the home repair business.”
– Gain a permit from the local government. “Hello, I’d
like to go door-to-door, and need a permit.”
– Prove you have special skills to get a license.
Market Feasibility
• Industry Description
– Describe the size and scope of the market
– Estimate the future direction of the market
– Describe the nature of the market
– Identify the life-cycle of the market
Market Feasibility
• “Industry” Competitiveness
– Investigate industry concentration
– Analyze major competitors
– Explore barriers of entry into market
– Determine concentration and competitiveness
of input suppliers
– Identify price competitiveness of service
Market potential
• Identify the demand and usage trends of
the market or market segment
• Examine the potential for emerging market
opportunities
• Assess estimated market usage and
potential share of the market
Market Feasibility
• Access to market outlets
– Identify the potential “buyers” of the service
and the associated marketing costs
– Investigate the distribution system and the
costs involved
Technical Feasibility
• Determine facility needs
– Estimate the size and type of production
facilities
– Investigate the need for related building and
equipment
– Investigate and compare technology providers
– Identify limitations or constraints of technology
Technical Feasibility
• Availability and suitability of site
– Access to markets
– Access to transportation
– Access to a qualified labor pool
– Access to production inputs
– Explore economic development incentives
– Explore community receptiveness to have
service located there.
• Technical risk
– larger projects are riskier
• project team size, project duration, number of
organizational units involved, programming effort
– structured and easily obtainable requirements
less risky
– use of standard technology less risky than
novel or non standard technology
• development team familiarity with hardware,
software development environment, OS;
application area; systems of similar scope
– less risk when user group is familiar with
system development process and application
area
• Operational feasibility
– likelihood of project attaining desired
objectives
– how new system will affect organizational
structures and processes,
– how it fits into current day-to-day operations
• Organizational/political feasibility
– how key stakeholders in organization view
system
– system can affect distribution of information,
thus power
• Schedule feasibility
– likelihood that timeframes can be met and
that this is adequate to meet organization’s
needs
• resource availability to enable schedule
Economic Feasibility:
• System Costs:
– Development Costs
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IS Personnel, consultants
hardware, software procurement
data conversion
documentation, user trg
Computer room, etc
– Production Costs
• operation and maintenance
• manpower, software / hardware upgrading,supplies
• System Benefits:
– Tangible
• reduced operating costs, transaction costs errors
• Increased transaction throughput
– Intangible
• improved customer relations
• better decision making, etc
Cost Benefit Analysis:
• Payback Point:
(Years to payback)
Development Costs
Benefits per year
• Sensitivity Factors
– Possible variation in cost/benefit estimates
1.1
Cost can be higher by 10%
• Effect of Inflation
• Time Value of Money
– Present Value (PV) = amt * 1 / (1 +c) ^ n
n : # of periods in time
c : Cost of Money ( discount rate )
• Profitability Index
– Earnings per dollar invested
– (Present value of total cash flow) (value of initial investment )
– Yearly cash flow = (Projected Annual Benefits) (Projected Annual
Production Cost)