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