1. Information Technology Economics

2. Information Technology: Economic and Financial Trends
Internal IT versus outsourcing
Expanding power / declining costs
Moore’s law - price to performance ratio
Technically versus economically feasible
Intangible benefits - difficult to access

3. Explaining the Productivity Paradox
Data and analysis problems hide productivity gains
IT productivity offset by losses in other areas
IT productivity offset by IT costs or losses
Wasted time

4. Explaining the Productivity Paradox
Software development problems
Software maintenance
Incompatible systems

5. Evaluating IT: Benefits and Costs
Value of information in decision making
Evaluating automation by cost-benefit analysis
Evaluating IT infrastructure
Evaluating IT performance: service level agreements

6. Evaluation of Intangible Benefits
Use concrete indicators
Solve for an unknown
Prevent competitive disadvantage

7. Evaluating IT Infrastructure Through Benchmarks
Metric benchmarks
Best practices benchmarks

8. Metric Benchmarks IT expenses as percent of total revenues
Percent of “down-time”
CPU usage as percent of total capacity
Percent of IS projects completed on time and within budget

9. Evaluating IT Performance: Service Level Agreements
Meet with the client to determine IT service
IS and client jointly determine measures
Schedule of measurements
Jointly determine action should service fail
Written document

10. Evaluation IT: Perspectives on Intangible Benefits
Value analysis
Information economics
Management by maxim for IT infrastructure
Option valuation of IT investments

11. Value Analysis

12. Information Economics
Key organizational objectives
Scoring methodology

14. Management by Maxim for IT Infrastructure
Consider strategic context
Articulate business maxims
Identify IT maxims
Clarify the firm’s view of its IT infrastructure
Specify infrastructure services

15. Option Valuation of IT Investments
Future returns
Expected value
Future decisions

16. Evaluating IT: Accounting for Costs
Accurate measure of IT costs
Charge users for IT investments - organizational goals
Chargeout
Outsourcing as an economic strategy

18. Behavior-Oriented Chargeout System: Implementation
Determine objectives
Determine appropriate measures
Implement and maintain the system

19. Outsourcing As an Economic Strategy
Core competencies
Which sources are less expensive
How much control is needed

20. Outsourcing Advantages and Disadvantages
Hardware economies of scale
Staffing economies of scale
Specialization
Tax benefits

22. Outsourcing Disadvantages
Limited economies of scale
Staffing
Lack of business expertise
Contract problems
Internal cost reduction opportunities

23. Outsourcing Recommendations
Write shorter contracts - less than 5 years
Subcontract control
Selective outsourcing

25. Negative Impacts of Failures and “Runaways”
Outright failure
Abandoned
Scaled down
Runaway

26. The New Economics of IT IT as a product World Wide Web (WWW)
Increasing returns

27. The New Economics of IT World Wide Web (WWW)
At least 33% of US population
Foreign markets
Universal connectivity

28. Increasing Returns
Increasing returns occurs where profitability rises more rapidly than production increases.

29. Increasing Returns: Advantages
Higher profitability
Network effects
Lock-in effect

30. Management Strategies Under Increasing Returns
Build a large customer base through low prices
Encourage development of complementary products
Use linking and leveraging

31. Managerial Issues Constant growth and change
Shift from tangible to intangible benefits
Not a sure thing
Chargeout
Risk
Outsourcing
Increasing returns

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