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66 Part 1 • SyStemS analySiS FundamentalS

When the results are graphed, it is easily noticeable that the widely fluctuating data are
smoothed. The moving average method is useful for its smoothing ability, but it also has many dis-
advantages. Moving averages are more strongly affected by extreme values than by using graphi-
cal judgment or estimating by using other methods, such as least squares. An analyst should learn
forecasting well, as it often provides information that is valuable in justifying an entire project.

Identifying Benefits and Costs
Benefits and costs can be either tangible or intangible. Both tangible and intangible benefits and
costs must be taken into account when systems are considered.

TANGIBLE BENEFITS. Tangible benefits are advantages that are measurable in dollars that accrue
to the organization through the use of the information system. Examples of tangible benefits are
an increase in the speed of processing, access to otherwise inaccessible information, access to
information on a more timely basis than was possible before, the advantage of the computer’s
superior calculating power, and a decrease in the amount of employee time needed to complete
specific tasks. And there are other tangible benefits. Although measurement is not always easy,
tangible benefits can actually be measured in terms of dollars, resources, or time saved.
INTANGIBLE BENEFITS. Some benefits that accrue to an organization from the use of an information
system are difficult to measure but are important nonetheless. They are known as intangible benefits.
Intangible benefits include improving the decision-making process, enhancing accuracy,
becoming more competitive in customer service, maintaining a good business image, and
increasing job satisfaction for employees by eliminating tedious tasks. As you can see from this
list, intangible benefits are extremely important and can have far-reaching implications for a
business as it relates to people both outside and within the organization.
Although intangible benefits of an information system are important factors that must be
considered when deciding whether to proceed with a system, a system built solely for its intan-
gible benefits will not be successful. You must discuss both tangible and intangible benefits in
your proposal because presenting both will allow decision makers in the business to make a
well-informed decision about the proposed system.
TANGIBLE COSTS. The concepts of tangible and intangible costs present a conceptual parallel
to the tangible and intangible benefits discussed already. Tangible costs are costs that a systems
analyst and the business’s accounting personnel can accurately project.
Included in tangible costs are the cost of equipment such as computers and terminals, the
cost of resources, the cost of systems analysts’ time, the cost of programmers’ time, and other
employees’ salaries. These costs are usually well established or can be discovered quite easily;
they are costs that will require the business to make a cash outlay.

INTANGIBLE COSTS. Intangible costs are difficult to estimate and may not be known. They include
losing a competitive edge, losing the reputation for being first with an innovation or the leader
in a field, declining company image due to increased customer dissatisfaction, and ineffective
decision making due to untimely or inaccessible information. As you can imagine, it is nearly
impossible to accurately project a dollar amount for intangible costs. To aid decision makers
who want to weigh a proposed system and all its implications, you must include intangible costs
even though they are not quantifiable.

Comparing Costs and Benefits
There are many well-known techniques for comparing the costs and benefits of a proposed sys-
tem. They include break-even analysis, payback, cash-flow analysis, and present value analysis.
All these techniques provide straightforward ways of yielding information to decision makers
about the worthiness of a proposed system.

BREAK-EVEN ANALYSIS. By comparing costs alone, a systems analyst can use break-even analysis
to determine the break-even capacity of a proposed information system. The point at which the
total costs of the current system and the proposed system intersect represents the break-even
point, the point where it becomes profitable for the business to get the new information system.
Total costs include the costs that recur during operation of a system plus the developmental
costs that occur only once (one-time costs of installing a new system)—that is, the tangible costs