Economic analysis of redesign alternatives for the RESFMS information system.
Richardson, Ron M.
Haga, William J.
Boger, Dan C.
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This study is a practical example of economic analysis of information systems and of the software cost estimation problem as applied to software development in the Department of Defense. Economic analysis methods and the difficulty of software cost estimation are demonstrated using the proposed redesign of the Reserve Financial Management System (RESFMSj. an information system operated by the U.S. Naval Resene. The mandate for economic analysis in the Department of Defense and procedures applicable to information systems are discussed. Two alternatives are analyzed: the status quo and a redesign proposed by Commander Naval Reserve Force (COMNAVRESFOR). Costs to be considered for each alternative are described. Since the major cost of the redesign will be software development, the problem of software development cost estimation is discussed. An estimate of software development cost is produced. This estimate and other identified costs are used to calculate present value of savings, savings investment ratio, and discounted payback period for the redesign alternative as compared to the status quo. Risk analysis, using a monte carlo simulation, is then performed to determine the range of possible outcome values and probabilities for each. The result of the economic analysis is a recommendation that RESFMS be redesigned as proposed by COMNAVRESFOR.
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