Chapter 10 Managing Information Systems and Technology Investments

Agenda Investment issues Evaluating IS/IT investment Setting priorities for applications Benefit management IT service charging

Investment Issues Justification & evaluation of IS/IT in terms of benefits Determining the priority in terms of benefits Realization of benefits Risk assessment

Evaluating IS/IT Investment Types of IS Types of benefits Relationship of IS & benefits IS & financial benefits

Types of IS Substitute for efficiency (do thing right) Complementary for effectiveness (do right thing) Innovative for competitive edge

Types of Benefits Cost/benefit analysis Value linking: improvement in business performance not cost saving Value acceleration: time dependency of costs and benefits in other dept. of system improvement Value restructuring: productivity resulting from organizational change & change of job roles Innovation evaluation: new business practice levered from IS/IT

Relationship of IS & Benefits - I High potential (innovative): cost/benefit, value linking, value acceleration, value restructuring, & innovation evaluation) Strategic (innovative & complementary): cost/benefit, value linking, value acceleration, & value restructuring

Relationship of IS & Benefits - II Key operational (complementary & substitute): cost/benefit, value linking, & value acceleration Support (substitute): cost/benefit, value linking, & value acceleration

IS & Financial Benefits - I High Potential: fund R&D exploring potential value & cost (risk money) Strategic: enable achievement of business objectives via explicit critical success factors (low)

IS & Financial Benefits - II Key operational: disadvantage/risk if it is not done (critical failure factors) & quantified performance improvement (medium) Support: net cost reduction through quantified saving (high)

Setting Priorities for Applications Assessment factors –Objectives (critical success factors) –Benefits (tangible & intangible) –Resources (financial, technology & human) –Risks (time, size, duration, technology, user expectation & availability)

Benefit Management Objectives: Organizing and managing business activities to realize the potential benefit Process –Identify and structuring of benefits –Planning benefits realization (business improvement by stakeholders) –Executing the benefits realization plan –Evaluating and reviewing results –Potential for future benefits

Risk Management Types of IS failure Success factors of IS Success factors & IS Types of risk

Types of IS Failure Business environment Organizational User Data Technical

Success Factors of IS Time Quality or benefits Cost

Success Factors & Application Strategic: time (h), quality (m), cost (l) Key operational: time (m), quality (h), cost (m) Support: time (l), quality (m), cost (h)

Types of Risk People: management, user, technical, & communication Size: person-years Project control: time, quality and cost Complexity of system: business functions Novelty: business change & technical solution Stability of requirement

IT Service Charging Types of service charging Service charging and IS

Types of IT Service Charging Service center Cost center Profit center Hybrid center

Service Center Pros –Stimulate experimentation –Avoid conflict –Promote use of service Cons –Uneconomic usage –No accountability –Excessive demand –No priority setting

Cost Center Pros –Justify request –Control on IS/IT –User aware of costs –Enable priority setting Cons –Deter use of IT –Focus on cost not benefit –Unsatisfactory in practice

Profit Center Pros –IS/IT controls its costs –IS/IT becomes proactive –Encourage user decision making Cons –User may go external –Create under-used IS/IT resources –IS/IT specialists in profitable work

Hybrid Center Pros –Allow different stages of IS/IT development –Accommodate innovation & new technology –Pricing can be used as a policy to achieve strategy Cons –Confusing to user –Complex accounting system –Incomplete control of IS/IT resource –Need continuous review of charging policy –Conflict in IS/IT department

Service Charging and IS Service center (no charge out & leading edge: high potential Cost center (average cost & scarce resource): support Cost center (standard cost & monopoly): key operational Profit center (market price & free market): support & high potential Hybrid center (flexible & centrally planned): strategic and potential

Points to Remember Investment issues Evaluating IS/IT investment Setting priorities for applications Benefit management IT service charging