Objectives: Introduction Over View of System Analysis and Design
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- 5.8 Interpret Results of the Analysis and Final Action
| 6. Cash – Flow Analysis:- Some projects, such as those carried out by computer and word processing services, produce revenues from an investment in computer systems. Cash–flow analysis keeps track of accumulated costs and revenues on a regular basis. The spreadsheet format also provides break – even and payback information. It is revenue minus expense on a period by period basis. Drawbacks of the Cash flow analysis are It ignores time value of money. Fora limited period, it does not take into account the profitability of the project. It ignores behavioral implications of the numbers in the financial statement. However the major advantage of the cash flow analysis is that it combines benefits of break even and payback methods. 5.8 Interpret Results of the Analysis and Final Action When the evaluation of the project is complete, the results have to be interpreted. This entails comparing actual results against a standard or the result of an alternative investment. The interpretation phase as well as the subsequent decision phase is subjective, requiring judgment and intuition. Depending on the level of uncertainty, the analyst maybe confronted with a single known value or a range of values. In either case, simpler measures such as net benefit analysis are easier to calculate and present than other measures, although they do not discount future cash flows. If it can be modified to include the time value of money, the net benefit method would be comparable to the net present value method. More complex measures such as net present value account for the time value of money but are more difficult to evaluate and present. The decision to adopt an alternative candidate system can be highly subjective, depending on the analyst’s or end user’s confidence in the estimated costs and benefits and the magnitude of the investment. In summary, cost benefit analysis is a tool for evaluating projects rather than a replacement of the decision-maker. In real-life business situations, whenever a choice among alternatives is considered, cost / benefit analysis is an important tool. Like any tool, however, it has problems 1. Download 0.94 Mb. Share with your friends:
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