Provide an overview of the proposed system, including costs and benefits, with an explanation of the various cost-benefit types and categories.

What will be an ideal response?

Stress that organizing the cost and benefit data is a very important step, because these economic factors directly will affect the new system’s feasibility and future development. A sample analysis follows. Also explain that each company has its own way of calculating costs and benefits, and some approaches are more conservative than others. For example, some companies will not count savings unless there is an actual reduction in out-of-pocket costs. In other firms, the saved hours represent a valuable asset that can be recognized and accounted for — and it is management’s job to see that the potential savings are achieved by doing more work, other work, or better quality work.

A sample analysis follows. The table outlines the tangible costs and benefits that are described in the Background statement of the textbook.



Note: Operational costs and benefits are estimated at 50 percent during Year 0, and full impact thereafter. Also, the instructor may wish to change these assumptionsto simulate a different situation.

A preliminary worksheet follows. The numbers themselves are not the critical issue – the main goal is for students to grasp the methodology, and transform this data into an analytical spreadsheet.