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Select the Best Alternative Physical System

28 August, 2015 - 12:21

The analysis team, working with the new system’s users, must now recommend the implementation of one of the alternative physical systems. The ultimate selection involves two decisions. First, the analysis team must decide which alternative system to recommend to the users and management. Second, given the analysis team’s recommendation, the firm’s management, usually the IT steering committee, must decide whether to undertake further development. And, if further development is chosen, management must decide which alternative system should be developed.

This two-part decision process is often an iterative process. The analysis team may recommend one alternative, and the users may disagree, thus requiring that the team rework its proposed system. After agreeing on the proposed system, the user/analyst team’s proposal is forwarded for approval by the IT steering committee. This committee must decide whether the development effort justifies expenditure of the firm’s cash. To reduce costs, for example, the IT steering committee may ask for revisions to the system, thus requiring yet another reworking of the proposed system.

Review Question

Why do we conduct a cost/benefit analysis?


To facilitate selecting a future physical system, the systems analysis team conducts a cost/effectiveness study, which provides quantitative and certain qualitative information concerning each of the alternatives. This information is used to decide which alternative best meets users’ needs. In making this determination, the team asks two questions. First, “Which alternative accomplishes the users’ goals for the least cost (or greatest benefit)?” This question is addressed by the cost/benefit study (or cost/benefit analysis). Second, “Which alternative best accomplishes the users’ goals for the system being developed?” This is the effectiveness study (or effectiveness analysis).


Respondents to a recent survey of 63 companies with enterprise systems, such as SAP R/3 and PeopleSoft, reported an average negative value of $1.5 million when quantifiable costs and benefits were compared. 1 However, that does not mean that organizations should not implement enterprise systems. These systems often lead to better customer service, integration across organizational units, and improved decision making—intangible effectiveness benefits. These benefits show some of the difficulties present in performing effectiveness analysis. For example, we may know many of the direct costs, but we may not know the magnitude of indirect costs such as loss of productivity. Also, we may not be able to identify or quantify expected benefits. Finally, we may be asked to implement systems for which the costs exceed the benefits.


Review Question

Why do we conduct an effectiveness analysis?