1. MANAGING INFORMATION TECHNOLOGY 7th EDITION
CHAPTER 10
METHODOLOGIES FOR PURCHASED SOFTWARE PACKAGES
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2. THE MAKE-OR-BUY DECISION.
- In large companies today, application software is typically both custom developed and purchased.
In small businesses, software is typically purchased.
Why?
Make
Better fit for company’s needs
Buy
Cost savings
Faster speed of implementation
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3. THE MAKE-OR-BUY DECISION
Advantages and Disadvantages of Purchasing
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4. PURCHASING METHODOLOGY
Initiating the Purchasing process
Development of a high-level cost estimate - with business manager and IS analyst input
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5. PURCHASING METHODOLOGY
The Purchasing Steps
Steps for purchasing application packages fit into the three SDLC phases (referred to as the modified SDLC approach)
Fig 10.1
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6. PURCHASING METHODOLOGY
The Purchasing Steps, continued
In comparison to an SDLC methodology, the Definition phase has additional steps, and the Construction phase is greatly reduced.
In special circumstances, if the package is new, the purchaser may play a major role as an Alpha or Beta site for the vendor:
- Alpha site: plays a role in determining the final functionality and user interface design for the new package
- Beta site: plays a role in user acceptance testing α β
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7. PURCHASING METHODOLOGY
Definition Phase
Two traditional SDLC steps:
Five additional steps:
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8. DEFINITION PHASE Feasibility Analysis
Determine whether the proposed system is economically, technically, and operationally feasible
In addition, the feasibility of purchasing rather than building the system is considered
- Preliminary investigation of available packaged systems
- Detailed cost-benefit analysis for budgeting and monitoring purposes
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9. Requirements Definition
DEFINITION PHASE
Requirements Definition
As when creating custom software, Requirements Definition is a critical step in the purchase methodology
But rather than create detailed requirements for in-house custom development, this step focuses on defining functional requirements needed to develop a Request for Proposal (RFP)
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10. Create Short List of Suitable Packages
DEFINITION PHASE
Create Short List of Suitable Packages
Eliminate all but a few promising candidate packages
Evaluate:
- Available features of a package
- Compatibility with current hardware and software
- Vendor track record
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11. Establish Criteria for Selection
DEFINITION PHASE
Establish Criteria for Selection
Business and IS team members work together to determine relevant criteria to select the best package
Some criteria may be mandatory, while others may be desirable
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12. Develop and Distribute RFP
DEFINITION PHASE
Develop and Distribute RFP
Request for Proposal (RFP): A formal document sent to potential vendors inviting them to submit a proposal describing their software package and how it meets the company’s needs
Gives vendors information about:
- System’s objectives and requirements
- Environment in which the system will be used
- General criteria used to evaluate proposals
- Conditions for submitting proposals
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13. Example of Content in RFP
DEFINITION PHASE
Example of Content in RFP
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14. DEFINITION PHASE Choose Package Collect data from:
- Vendors’ responses from RFPs
- Vendor demonstrations (for a few leading packages)
References from users in other companies
Project team evaluates how well available packages meet company’s needs
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15. DEFINITION PHASE Negotiate Contract
Use of an attorney for contracting with a vendor reduces likelihood of future legal problems
Contract type has implications for the risk level of the purchasing company
- for fixed-price contracts, the purchasing company knows the total price in advance
- for cost-reimbursement contracts, the purchasing company pays the vendor’s direct and indirect costs and thus assumes a much greater risk
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16. PURCHASING METHODOLOGY
Discrepancies between needs and package capabilities will need to be dealt with by:
- Modifying the package
- Changing internal procedures
- Living with the differences
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17. CONSTRUCTION PHASE
System Design and Building steps are only necessary if modifications are to be made to the package.
However, essentially all packages will require “configuring” the package to meet the organization’s needs by making choices using pre-programmed templates by the vendor.
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18. CONSTRUCTION PHASE System Design and Building:
- Typically the vendor does not provide the source code for the package, so the company typically contracts with the vendor (or a certified third party firm) for modifying the package.
Changes may also be required for other existing company systems that interface with the package.
System Testing:
- User acceptance testing of configured package (and/or modified package)
IS specialist or vendor testing on organization’s equipment
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19. IMPLEMENTATION PHASE
Same three steps as for Implementation phase for custom development:
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20. IMPLEMENTATION PHASE Installation
Installation planning, training, data cleanup, and conversion
Success dependent on:
- Quality of vendor support
Package size and complexity
Special attention needs to be given to training, especially if there are significant changes in the way employees do their work
Change management is a set of activities designed to help overcome resistance by business users to the new system
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21. IMPLEMENTATION PHASE Operations
Operations is the same, whether the package was built or bought
Initial success highly dependent on good communication with the vendor
Long-term success also dependent on how well the system has been integrated into the company’s ongoing operations
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22. IMPLEMENTATION PHASE Maintenance
Most common = vendor handles package maintenance, as specified in the contract
Advantage:
Can lead to significant cost avoidance over the life of the system
Disadvantages:
- Purchasing company totally dependent on vendor for future system changes
- May not get specific changes that the company wants
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23. PURCHASING METHODOLOGY
Project Team
Project manager: usually is an IS manager, but may be a business manager (or both)
IS analysts and IS specialists who will operate the system
Representatives of key business managers and users
Software vendor personnel
Sometimes a third-party implementation partner (other than vendor)
For contracting:
purchasing specialists and attorneys
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24. ENTERPRISE SYSTEM PACKAGES
Enterprise Resource Planning (ERP) systems are software packages designed to integrate all departmental and functional systems into a single integrated system
Packages are more complex to implement because they can impact an entire enterprise
Companies purchase to achieve business benefits and IT platform benefits, such as:
- Enables access to integrated data for better decision making
- Takes advantage of client/server platform
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25. ENTERPRISE SYSTEM PACKAGES
Five Factors for Successful ERP implementation:
Top management is engaged in the project, not just involved
Project leaders are veterans, and team members are decision makers
Third parties fill gaps in expertise and transfer their knowledge
Change management goes hand-in-hand with project planning
A satisficing mind-set prevails .
Source: Brown and Vessey, MIS Quarterly Executive, 2003
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26. OPEN SOURCE SOFTWARE Open Source Software
Free to acquire, so lower upfront costs
Ability to access and modify the source code
Third parties also provide fee-based products:
- Advanced features for the product
- Maintenance and training
- Documentation and manuals
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27. Open Source Software Licensing
There are many different licenses for open source software
All allow for the modification and redistribution of source code, but some have conditions or restrictions
It is important for managers to be aware of the specific terms of a license so that they are not violated
Open Source Licenses
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28. OPEN SOURCE SOFTWARE Advantages
- Large pool of volunteer testers and developers
- Ability to modify source code
- Not dependent on a single vendor
- Acquisition cost is the same for one copy or thousands
- May use the software for any purpose
- May be easier to interface open source packages with each other
Open Source in the Enterprise
Open Source Applications
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29. OPEN SOURCE SOFTWARE Disadvantages
- No complete documentation without paying for it
- May not be viable for software that is not common to many organizations
- Different adopters may duplicate efforts in development
- Must be careful in choosing a licensing agreement that fits the company’s needs
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30. APPLICATION SERVICE PROVIDERS (ASPs)
Purchaser elects to use a “hosted” application rather than to purchase the software application and operate it in-house
Company pays ASP vendor for delivering the software functionality over the Internet to company employees (and sometimes business partners)
ASP vendor = an ongoing service provider
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31. APPLICATION SERVICE PROVIDERS (ASPs)
ASP Advantages
- Cost savings and faster speed of implementation
Usually involves monthly fees rather than large infrastructure investment
ASP Disadvantages
- Dependence on an external vendor for both software and ongoing operations
- Contract based on initial estimates of required service levels
Customization by ASPs by 2004
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32. APPLICATION SERVICE PROVIDERS (ASPs)
Service Level Agreement (SLA) specifies performance expectations for the ASP, including:
- System uptime
- Recovery time
- Wait time on calls to the help desk
- Notifications about software upgrades
- Other factors important to the customer
This agreement should be a key part of the ASP contract
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33. Copyright Copyright © 2012 Pearson Education, Inc.
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Copyright © 2012 Pearson Education, Inc.  
Publishing as Prentice Hall
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall