The main ideas of systems analysis were originally developed by the RAND Corporation of America. It was created for the study of interaction between science, technology, and society. Several variations have been introduced.
The one presented here is distinctive for the basic concept and has been adopted from R. Flood and E. Carson (1988). It is a typical hard systems methodology, consisting of four steps: problem analysis, generation of alternative solutions, evaluation of alternatives, and selection of the optimal alternative. Finally, action is taken based on the selected alternative.
1st step. Problem analysis: Here the problem and its cost are defined, thus giving an economic measure to use in comparison with alternatives. Two main questions serve as guidelines:
- What are the limitations of the present system?
- What is the cost of operating the present system?
Efficient features of the existing system worth retaining are observed.
2nd step. Generation of alternative solutions: Alternatives to the present system are generated and their main features are examined. Two main questions serve as guidelines:
- What alternative systems are possible?
- What would be the operating costs of the alternative systems?
All factors associated with the choice of an alternative, such as the pertinent advantages and disadvantages, should be carefully considered. Comparative economic evaluation between the operating costs of the alternatives should be performed as well as testing of the feasibility of trade-off costs within each alternative.
3rd step. Evaluation of the alternatives: In this step, the capital costs of introducing a new system or improving the present one are assessed. Comparisons between the various alternatives, where both operating and capital costs are taken into account, are made. Two important questions are posed:
- What are the capital costs of continuing with the present system, and of changing to alternative systems?
- What comparisons can be made between the various systems, taking all costs into account?
This step includes comparative capital costing, including inquiries into factors such as the rate of return obtained on money invested. Basic principles of capital investment must be considered as inherent in the following questions: what is a reasonable return on the investment and over what time period should the investment be considered? A variety of methods available for calculating the return must thus be considered, along with their advantages and disadvantages. An appropriate method of taking inflation into account in connection with future costs must also be considered.
4th step. Selection of the optimal alternative: The best alternative is now selected, considering not only economic but also operational, marketing, environmental and human factors. Two important questions should be asked:
- What is the most economical solution?
- Is the most economical solution the best ‘all-round’ solution?
In these questions lie a real potential for conflict, particularly between quantifiable economic factors and those not so readily quantifiable, such as the quality of human working conditions and environmental impacts (pollution, etc.). Therefore, the best solution is not always the most economically efficient one. A right answer is only right in the limited sense that it reflects the company’s objectives at the time of the decision.
Source: Skyttner Lars (2006), General Systems Theory: Problems, Perspectives, Practice, Wspc, 2nd Edition.