1. Chapter 12 Copyright 2001 Prentice Hall
Looking Forward
Chapter 12
Copyright 2001 Prentice Hall

2. Budgeting and Procurement
Planning how to spend money
Selecting and purchasing technologies and services

3. The Budget Realities
Exploding demand but stagnant or slowly-growing budgets
Must buy only what you really need in every system
Demand
Budget
Time

4. Costs Total Purchase Costs
Network products and services are sold with many options
Base price is misleading because of the absence of needed options
It is crucial to cost out the total purchase cost of a system fully configured for your needs

5. Costs Initial Installation Cost The purchased product or service
Labor needed to implement
Central staff labor
User labor, including training costs
Losses due to implementation disruptions
May exceed purchase cost

6. Costs Ongoing Costs over Life Span Often exceed initial costs
Labor
Upgrades
Etc.
Especially high in products that are not mature
When possible, avoid the “bleeding edge”

7. The Timing of Costs and Benefits
Discounting
Money can be invested
If the investment rate is 20%, then
$1 invested today will bring $1.20 next year
So $1 received today is worth $1.20 received next year
Or, $1.20 received next year is worth $1 today
Or, $1 received next year is worth only $0.80 today

8. The Timing of Costs and Benefits
When Costs and Benefits Come Over Time
Hurdle rate: minimum rate of return expected by a corporation for investments
Often around 20%
If the hurdle rate is i then
Money received or spent a year from now should be discounted (divided) by (1+i)
Money received or spent n years from now should be discounted (divided) by (1+i)n

9. Procurement User Needs Must drive everything else
Sometimes difficult to assess
But the only way to drive evaluations of alternatives

10. Procurement Request for Proposals (RFP)
Call for proposals to bid on the project
Specifies what should be provided
RFP will form the basis for resolving subsequent contract disputes
Must be very detailed
A legal document
If something is left out, negotiating for it after the contract is signed will be done at the contractor’s advantage

11. Procurement Proposals Several companies are likely to submit proposals
These proposals must be evaluated so that you can select the best one
You must lay out your evaluation criteria in the RFP and follow them in selection, or you can be sued by a loser

12. Procurement Evaluating Proposals with Multicriteria Decision Making
First, you must have specific criteria
For instance, price, performance, and reliability
Same criteria must be applied to each proposal
Second, you must give a weight (importance) to each
Often of 5-point or 10-point scale
Same weights must be applied to each proposal

13. Procurement Evaluating Proposals with Multicriteria Decision Making
Third, you must evaluate each proposal on each criteria
Perhaps on scale of 1 to 10 or some other scale
Score on each criterion will be different for each proposal

14. Procurement Evaluating Proposals with Multicriteria Decision Making
Fourth, do the arithmetic for each proposal
Highest total score should win
Proposal A
Score
Weight
Product
Price 10 5 50
Performance 6 8 48
Reliability 5 4 20
Total Score
118

15. Procurement Evaluating Proposals with Multicriteria Decision Making
Example: a different proposal
Same criteria & weights, different scores, total score
Proposal B
Score
Weight
Product
Price 8 5 40
Performance 7 8 56
Reliability 8 4 32
Total Score
128

16. Procurement Negotiating before contractor selection
Often, negotiate with a few highly-rated proposers before selection for better terms
Proposers present their Best and Final Offers

17. Procurement Ongoing Monitoring Renegotiating During Performance
Must monitor the ongoing work to ensure compliance
Renegotiating During Performance
Sometimes must renegotiate during work; Bad because at a disadvantage in negotiations