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  1. Development Strategies Dr. Yan Xiong College of Business CSU Sacramento 10/12/03

  2. Agenda • Software Packages • In-house Development • Outsourcing • Business Process Reengineering (BPR) • Prototyping

  3. Purchase Software • Canned software:written by computer manufacturers or software development companies • Sold on open market to broad range of users with similar requirements • Turnkey systems: combination of software and hardware sold as a package

  4. Purchasing Software • Companies that buy rather than develop AIS software still go through systems development life cycle (SDLC) • Implementation phase is reduced: • less coding • less testing • This is most costly

  5. Purchasing Software • Companies that buy rather than develop AIS software still go through systems development life cycle (SDLC) • Implementation phase is reduced: • less coding • less testing • This is most costly SDLC phase

  6. Can package be modified? Will package meet needs? Systems Acquisition Process Investigate software packages Develop software internally No No Yes Yes Send RFP for software and hardware Send RFP for hardware, if necessary Select best combination Evaluate proposal

  7. Alternative Screening Matrix • Use for screening, not selection • Beware of implying too much accuracy

  8. Alternative Screening Matrix • Example: • Vendor A score 4.35 • Vendor B score 4.25 • Vendor C score 3.25 • Vendor C out; Vendors A and B too close to call

  9. Alternative Screening Matrix M Evaluation Criteria N Alternatives Alternatives to be Compared Evaluation Criteria Crit. Weight . . . . A1 A2 An C1 Wc1 C2 Wc2 . . . . . . Cm Wcm . . . . Total 1.00 T1 T2 Tn

  10. Determining Weights • Rank factors in importance with most important receiving highest number • Total the ranks • Divide each factor weight by the total • Make individual weight adjustments if necessary

  11. Most important criterion gets highest rank Weighting Example TOTAL 1.00 TOTAL 15

  12. Agenda • Software Packages • In-house Development • Outsourcing • Business Process Reengineering (BPR) • Prototyping

  13. In-house Development • In the past, most organizations had information system departments develop custom software, because canned software fitting specific needs not available • Developing custom software difficult and error-prone • Also consumes a great deal of time and resources

  14. In-house Development • Custom software usually developed and written in house • Alternatively, can engage outside company to develop package or assemble it from their inventory of program modules (objects) • called “outsourcing” • When contracting with outside organization, must maintain control over the development process

  15. In-house Development • Outsourcing management: • carefully select developer • Vendor Screening Matrix • sign contract • plan and monitor each step • maintain effective communication • control all costs

  16. Agenda • Software Packages • In-house Development • Outsourcing • Business Process Reengineering (BPR) • Prototyping

  17. Outsourcing • Hiring outside company to handle all or part of an organization’s IT activities • In mainframe outsourcingagreement, outsourcers buy client’s computers and hire all or most of client’s employees • Electronic Data Services (EDS)

  18. Outsourcing • In client/server (PC) outsourcing agreement, firm contracts for: • particular service • segment of its business • particular function • PC support

  19. Outsourcing Types • Professional services (consulting) • Services (training / data entry) • Temporary employees • contract programmers • Transactions (credit reports) • Systems integrators

  20. Benefits of Outsourcing A business solution Asset utilization Access to greater expertise and more advanced technology Lower costs Improved development time Elimination of peaks and valleys usage Facilitation of downsizing Outsourcing

  21. Risks of Outsourcing Inflexibility Loss of control Reduced competitive advantage Locked-in system Not tied to corporate goals Outsourcing

  22. When to Outsource • Activity not strategic • Save at least 15% • Need technology specialists • Increase financial flexibility • capital to operating expenses • Free personnel for development • Acquire new technologies quicker

  23. Outsource Failures • DT Study, 1997 • Vendor expertise and sophistication • Improved delivery quality • Cost reduction • Increased focus on core competencies • Transition to new technologies

  24. Raleys • Prefer to acquire talented, retail-oriented staff • Augments IT projects with consultants, contractors • Outsource professional services such as training and data entry

  25. Agenda • Software Packages • In-house Development • Outsourcing • Business Process Reengineering (BPR) • Prototyping

  26. Reengineering Hammer / Champy “ . . . fundamental rethinking andradical redesign of business processes to achieve dramatic improvements . . .”

  27. BPR • Reduces company to essential processes • Focuses on whythey are done rather than on the details of how they are done • Completely reshapes organizational work practices and information flows to take advantage of technological advancements

  28. Business Process “…set of tasks that directly support the achievement of business objectives by providing a product or service for a customer who is outside the organization or in a different organizational unit” American Management Systems

  29. Core Processes • 4 or 5 in any organization • Can be broken down into sub-processes • Critical to organization’s success • Focus redesign on these processes

  30. Financial Core Processes Product New loan, savings Development checking plan Sales and New accounts, Marketing acquisitions Order Deposits, loans, Fulfillment withdrawals Customer Financial planning, Service inquiries

  31. Pharmaceuticals Core Processes Product R & D testing Development Sales and Market segmenta- Marketing tion, contracts Order Contract manage- Fulfillment ment, shipping Customer Claims analysis Service

  32. BPR Examples • From Martin, Analysis and Design of Business Information Systems, (Prentice Hall, 1995) • All focused on Data Flow Diagrams (DFDs)

  33. DeliveryVendor Produce Deliver ConrailDelivery Produce Outsourcing A. GM Process Flows Before B. Outsourcing Delivery to Contrail

  34. Cust. P1 P2 P3 Cust. P1 P2 P3 Cust. Cust. Case Mgr. Customer Focus Before: After:

  35. Before: 3.5 EditOrder After: PendingOrder File 3.5 EditOrder 3.6 ShipProduct Buffering 3.6 ShipProduct Order

  36. 3.1 Order (Copy 1) Verify Order Customer 3.2 Order (Copy 2) Credit Check Parallel Processing Before: 3.1 3.2 Order Order Customer Verify Order Credit Check After:

  37. 1 2 3 Geographic Balancing Building A Building B Before:

  38. Geographic Balancing Building A Building B After: 1 3 2

  39. BPR Challenges • Tradition • Resistance • e.g., seniority • Time requirements • Lack of management support • Risk • most crucial processes • on-going organization

  40. BPR Challenges • Controls • often sacrificed for sake of efficiency • e.g., eliminating verification process • Accountants must ensure that what is gained by BPR is not lost through fraud, errors, etc.

  41. Controls Example • BPR expert recommends that you consolidate two sequential processes • reduce personnel • reduce handoffs (errors) • increase job satisfaction • But you will lose separation of duties

  42. Controls Example • Calculate BPR consolidation savings • Calculate probable fraud costs • Likelihood of threat (risk) times exposure $ • Compare

  43. “Best-of-Breed” Quality NeedsImprove-ment Non - Critical Critical Importance State of California Guidelines Consolidate,Transfer Internally Improve,Leverage Redesign(Reengineer) Outsource

  44. Agenda • Software Packages • In-house Development • Outsourcing • Business Process Reengineering (BPR) • Prototyping

  45. Prototyping • Approach to systems development in which simplified working model of system developed • Prototype (“first draft”) quickly and inexpensively built • Provided to users for testing and training

  46. Why Prototyping “When you’re working with new system ideas with your users, you don’t want to go through the cost of developing a gigantic system which might take years; you’ll build a mock-up of it, which might take weeks.” Brian Kilcourse, CIO Longs Drug Stores

  47. Why Prototyping • Experience at AT&T, TRW, and IBM • 30% of system requirements will change BEFORE initial system delivery • Production error correction model

  48. $ Prototyping T i m e t o D e t e c t Error Correction

  49. Develop Prototype Operationalize Prototype Refine Prototype Complete System Prototype Life Cycle Analyze problem

  50. Prototype Types • Iterative: Make series of changes until prototype becomes the final system • e.g., writing a poem • Throw-away: Once user approves, then abandon for construction purposes • e.g., architect’s drawing of new house