Corrections to Information Systems and Business Values
LeeTampa
Costbenefitanalysisexample.pptxCost benefit analysis
| SYSTEM | YEAR 1 COST ($) | YEAR 2 COST ($) | YEAR 1 BENEFIT ($) | YEAR 2 BENEFIT ($) | TOTAL COST ($) | TOTAL BENEFIT ($) |
| Enterprise Resource Planning (ERP) | 580,000 | 360,000 | 720,000 | 840,000 | 940,000 | 1,560,000 |
| Executive Information System (EIS) | 99,000 | 18,000 | 1,200,000 | 1,800,000 | 117,000 | 3,000,000 |
ASSUMPTIONS:
Enterprise Resource Planning
Actual price is $ 100,000.00
Costs will increase by $2000.00 per user for 240 users and $1500 00 per user for 240 users in the second year.
Revenue will increase by $3000.00 per user for 240 users in the first year and $3500.00 for 240 users in the second year.
Executive Information System
Actual Price is $75,000.00
Costs will increase by $2000.00 per user for 12 users in the first year and $1500.00 per user for 12 users in the second year.
Revenue will increase by $100,000.00 per user for 12 users in the first year and $150,000.00 per user for 12 users in the second year.
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EVALUATE COSTS AND BENEFITS
| ERP | EIS | |
| Total Costs | 3,803,534 | 2,980,534 |
| Total Benefits | 4,631,540 | 6,071,540 |
| Cost Benefit Ratio | 1.22 | 2.04 |
Enterprise Resource Planning
After implementation total costs and benefits would be $940,000+2,863,534 and $1,560,000 +3,071,540 respectively and cost benefit ratio would therefore be 1.22.
Executive Information System
After implementation total costs and benefits would be $117,000+2,863,534 and $3,000,000+$3,071,540 and cost benefit ratio would therefore be 2.04.
Evaluation
In a cost benefit analysis , a finding of total benefits exceeding total costs, or a higher cost benefit ratio, is an indication of the potential viability of the project. To the extent that an investment in the EIS system yields a higher return than the ERP suggests that the EIS is a more realistic opportunity and should be pursued.
Recommendation
The purchase of the Executive information system is therefore recommended.
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