Objectives: Introduction Over View of System Analysis and Design
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- 4. Payback Analysis
- 5. Break even Analysis
| 3. Net Present Value- The net present value is equal to discounted benefits minus discounted costs. Our Rs. 3,000 microcomputer investment yields a cumulative benefit of Rs. 4,758.51 or a net present gain of Rs. This value is relatively easy to calculate and accounts for the time value of money. The net present value is expressed as a percentage of the investment- in our example 1,758.51/3,000 = 0.55 percent 4. Payback Analysis- The payback method is a common measure of the relative time value of a project. It determines the time it takes for the accumulated benefits to equal the initial investment. Obviously the shorter the payback period, the sooner a profit is realized and the more attractive is the investment. The payback method is easy to calculate and allows two or more activities to be ranked. Like the net profit, though, it does not allow for the time value of money. The payback period maybe computed by the following formula Overall cost outlay Annual cash return = (AB+ (CD (5+2)= Years + Installation time (G) / Years to recover 5. Break even Analysis- Break even is the point where the cost of the candidate system and that of the current one are equal. Unlike the payback method that compares costs and benefits of the candidate system, break-even compares the costs of the current and candidate systems. When a candidate system is developed, initial costs usually exceed those of the current system. This is an investment period. When both costs are equal, it is break-even. Beyond that point, the candidate system provides greater benefit profit) than the old one--a return period. A break–even chart compares the costs of the current and candidate systems. The attributes are processing cost and processing volume. Straight lines are used to show the model’s relationships in terms of the variable, fixed and total costs of the two processing methods and their economic benefits. Intersection indicates the point where the total cost of processing transactions by the current system is equal to the total cost of using the candidate system. Beyond that point is the return period. Before the intersection is the investment period. According to the chart, then, it would be more economical to process manually when volume is below the number of break even point transactions. Higher processing volume favors the candidate system. Download 0.94 Mb. Share with your friends:
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