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MIS 301 Information Systems in Organizations. Dave Salisbury [email protected] (email) http://www.davesalisbury.com/ (web site). Planning, Justifying & Paying for IT/IS.

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mis 301 information systems in organizations

MIS 301Information Systems in Organizations

Dave Salisbury

[email protected] (email)

http://www.davesalisbury.com/ (web site)

planning justifying paying for it is
Planning, Justifying & Paying for IT/IS
  • Explain the four-stage model of information systems planning, and discuss the importance of aligning information systems plans with business
  • plans.
  • Describe information requirement analysis, project payoff and portfolios, resource allocation, and project planning.
  • Discuss the meaning and importance of IT alignment.
  • Identify the different types of IT architectures and outline the processes necessary to establish an information architecture.
  • Discuss the major issues addressed by information systems planning.
  • Distinguish the major Web-related IT planning issues and understand application portfolio selection.
  • Identify the major aspects of the economics of information technology.
  • Explain and evaluate the “productivity paradox”
  • Describe approaches for evaluating IT investment and explain why it is difficult to do it.
  • Explain the nature of intangible benefits and the approaches to deal with it.
  • List and briefly describe the traditional and modern methods of justifying IT investment.
  • Identify the advantages and disadvantages of approaches to charging end users for IT services (chargeback).
  • Identify the advantages and disadvantages of outsourcing.
  • Describe the economic impact of EC.
  • Describe economic issues related to web-based technologies including e-commerce.
  • Describe causes of systems development failures, the theory of increasing returns, and market transformation through new technologies.
four stages of it is planning
Four Stages of IT/IS Planning
  • Strategic IT Planning
  • Information Requirements Analysis
  • Resource Allocation
  • Project Planning
it planning a critical issue for organizations
IT Planning — A Critical Issue for Organizations
  • Business-led approach: The IT investment plan is defined on the basis of the current business strategy.
  • Method-driven approach: The IS needs are identified with the use of techniques and tools.
  • Technological approach: Analytical modeling and other tools are used to execute the IT plans.
  • Administrative approach: The IT plan is established by a steering committee.
  • Organizational approach: The IT investment plan is derived from a business-consensus view of all stakeholders in the organization
it planning a critical issue for organizations continued
IT Planning — A Critical Issue for Organizations Continued
  • Strategic IT planning: Establishes the relationship between the overall organizational plan and the IT plan.
  • Information requirements analysis: Identifies broad, organizational information requirements to establish a strategic information architecture that can be used to direct specific application development.
  • Resource allocation: Allocates both IT application development resources and operational resources.
  • Project planning: Develops a plan that outlines schedules and resource requirements for specific IS projects.
stage 1 planning
Stage 1-Planning
  • IT Alignment with Organizational Plans: The primary task of IT planning is to identify information systems applications that fit the objectives and priorities established by the organization.
  • Analyze the external environment (industry, supply chain, competition) and the internal environment (competencies, value chain, organizational structure) then relate them to technology (alignment).
  • Alignment is a complex management activity whose complexity increases in accordance with the complexity of organization.
planning models
Planning Models
  • Business Systems Planning (BSP)
    • Business processes
    • Data classes
  • Stage Model
    • Initiation. When computers are initially introduced.
    • Expansion (Contagion). Centralized growth takes place as users demand more applications.
    • Control. In response to management concern about cost versus benefits, systems projects are expected to show a return.
    • Integration. Expenditures on integrating (via telecommunications and databases) existing systems
    • Data administration. Information requirements rather than processing drive the applications portfolio.
    • Maturity. The planning and development of IT are closely coordinated with business development
planning models1
Planning Models
  • Critical success factors (CSFs) are those few things that must go right in order to ensure the organization's survival and success. Critical success factors vary by industry categories—manufacturing, service, or government—and by specific industries within these categories. Sample questions asked in the CSF approach are:
    • What objectives are central to your organization?
    • What are the critical factors that are essential to meeting these objectives?
    • What decisions or actions are key to these critical factors?
    • What variables underlie these decisions, and how are they measured?
    • What information systems can supply these measures?
  • Scenario planning is a methodology in which planners first create several scenarios, then a team compiles as many as possible future events that may influence the outcome of each scenario.
stage 2 requirements analysis
Stage 2-Requirements Analysis
  • The second stage of the model is the information requirements analysis, which is an analysis of the information needs of users and how that information relates to their work. The goal of this second stage is to ensure that the various information systems, databases, and networks can be integrated to support the requirements identified in stage 1.
  • Information requirements analysis in stage 2 is a more comprehensive level of analysis. It encompasses infrastructures such as the data needs (e.g., in a data warehouse or a data center), requirements for the intranet, extranet, and corporate partners are established.
  • Identifies high payoffs IT projects which will produce the highest organizational payoff.
  • Provides an architecture that leads to a cohesive, integrated systemsthat offers the most benefit
stage 3 resource allocation
Stage 3-Resource Allocation
  • Developing plans for
    • Hardware, software, data networks and communications
    • Facilities, personnel, and financial plans
  • Difficult and in many cases a political process.
    • opportunities and requests for spending far exceed the available funds.
    • some projects and infrastructures are necessities, and therefore not negotiable
  • Do we outsource some of this?
stage 4 project planning
Stage 4-Project Planning
  • Specific applications can be planned, scheduled, and controlled.
  • Vendor management and control
  • Outsourcing decisions
  • Specific Requirements
    • We have to understand precisely what we are going to do
    • We need to know start and end dates
    • We need to know resources and authority
    • We need to know specific tasks & responsibilities
  • Tools exist for planning and control:
    • PERT & CPM
    • Gantt Charts
it architectures infrastructure
IT Architectures & Infrastructure
  • Information technology architecture refers to the overall structure of all information systems in an organization.
    • Applications for management levels
    • Applications for functions
    • Infrastructure
  • Factors that influence use of IT infrastructure levels
    • information intensity
    • strategic focus
    • Industry. Manufacturing firms use less IT infrastructure services than retail or financial firms.
    • Market volatility. Firms that need to change products quickly use more IT infrastructure services.
    • Business unit synergy. Firms that emphasize synergies (e.g., cross-selling) use more IT infrastructure services.
    • Strategy and planning. Firms that integrate IT and organizational planning, and track or monitor the achievement of strategic goals, use more IT infrastructure services.
it architectures
IT Architectures
  • Architectural choices are:
    • Centralized computing: puts all processing and control authority within one computer to which all other computing devices respond.
    • Distributed computing: gives users direct control over their own computing by providing a decentralized environment
    • Blended computing: a blend of the two models
  • End-user configurations (workstations):
    • Centralized computing with the PC functioning as “dumb terminals” or “not smart” thin PCs.
    • A single-user PC that is not connected to any other device.
    • A single-user PC that is connected to other PCs or systems, using a telecommunications connections.
    • Workgroup PCs connected to each other in a small P2P network.
    • Distributed computing with many PCs fully connected by LANs via wireline or Wi-FI.
it planning challenges
IT Planning Challenges
  • Interorganizational Systems (IOS)
    • Involve several organizations - may be complex
    • IT planners should focus on groups of customers, suppliers, and partners
  • Multinational Corporations
  • Different laws, politics and society
  • Tend to decentralize IT planning and operations
  • Other Problems for IT Planning
    • Cost, ROI justification
    • Time-consuming process
    • Obsolete methodologies
    • Lack of qualified personnel
    • Poor communication flow
    • Minimal top management support
    • Turbulent, uncertain environments
managerial issues
Managerial Issues
  • Sustaining competitive advantage
  • Importance
  • Organizing for planning
  • Ethical and legal issues
  • IT strategy
managerial issues1
Managerial Issues
  • Fitting the IT architecture to the organization. Management of an organization may become concerned that its IT architecture is not suited to the needs of the organization. In such a case, there has likely been a failure on the part of the IT technicians to determine properly the requirements of the organization. Perhaps there has also been a failure on the part of management to understand the type and manner of IT architecture that they have allowed to develop or that they need.
  • IT architecture planning. IT specialists versed in the technology of IT must meet with business users and jointly determine the present and future needs for the IT architecture. In some cases, IT should lead (e.g., when business users do not understand the technical implications of a new technology). In other cases, users should lead (e.g., when technology is to be applied to a new business opportunity). Plans should be written and published as part of the organizational strategic plan and as part of the IT strategic plan. Plans should also deal with training, career implications, and other secondary infrastructure issues.
  • IT policy. IT architectures should be based on corporate guidelines or principles laid out in policies. These policies should include the roles and responsibilities of IT personnel and users, security issues, cost-benefit analyses for evaluating IT, and IT architectural goals. Policies should be communicated to all personnel who are managing or directly affected by IT.
computing power vs benefits
Computing Power vs. Benefits
  • Enables most organizations to decrease costs thereby enhancing efficiency
  • Enables creative organizations to find new uses for information technology and enhance their effectiveness
  • What is the payoff from IT investments?
  • How can it be measured?
  • Productivity
  • Benefits
  • Costs
  • Other economic aspects of IT
measuring benefits and costs
 Measuring Benefits and Costs
  • Infrastructure versus specific applications
    • IT infrastructure provides the foundations for IT applications
      • data center
      • Networks
      • data warehouse
      • knowledge base
    • Long-term, shared investments, spread across
    • IT applications are specific systems and programs for specific tasks
      • Payroll
      • inventory control
      • order taking
    • Some departments, not others
  • Evaluating IT investments
    • Value of information in decision-making
    • Traditional Cost-Benefit analysis (tangibles)
    • Scoring Matrix or Scorecard (intangibles)
evaluating the value of information
 Evaluating the value of information
  • Difference between the net benefits (benefits adjusted for costs) of decisions made using information and the net benefits of decisions made without information
  • Assumption: Systems that provide relevant information to support decision making will result in better decisions, and therefore they will contribute toward ROI. However, this may not always be the case.
how to justify it economically
How to justify IT economically
  • Financial Cost-benefit analyses
    • Net Present Value (NPV)
      • convert future values of benefits to their present-value eqivalent
      • Discounted at the organization’s cost of funds
      • Compare the present value of the figure benefits to the cost required to achieve these benefits
    • Return on Investment (ROI)
    • measures the effectiveness of management in generating profits with its available assets
    • Calculated by dividing net income attributable to a project by the average assets invested in the project
  • How do you decide the costs and benefits, particularly of options not taken?
costing it investments evaluating
“Costing” IT Investments - evaluating
  • Placing a dollar value on the cost of IT investments is not simple. One of the major issues is to allocate fixed costs among different IT projects. Fixed costs are those costs that remain the same in total regardless of change in the activity level.
  • Another area of concern is the Life Cycle Cost; costs for keeping it running, dealing with bugs, and for improving and changing the system. Such costs can accumulate over many years, and sometimes they are not even anticipated when the investment is made.
  • There are multiple kinds of values (tangible and intangible)
    • Improved efficiency
    • Improved customer relations
    • The return of a capital investment measured in dollars or percentage
    • etc.
  • Probability of obtaining a return depends on the probability of implementation success
intangible benefits evaluating
Intangible benefits – evaluating
  • Intangible benefits
    • increased quality
    • faster product development
    • greater design flexibility
    • better customer service
    • improved working conditions for employees.
    • Difficult to quantify them with a monetary value
    • Complex but potentially substantial
  • Evaluating Intangible Benefits
    • Make rough estimates of monetary values for all intangible benefits, and then conduct a NVP or similar financial analysis.
    • Scoring Matrix or Scorecard
handling intangible benefits sawhney
Handling Intangible Benefits (Sawhney)
  • Think broadly and softly.Supplement hard financial metrics with soft ones.
  • Pay your freight first.Think carefully about short-term benefits that can “pay the freight” for the initial investment in the project.
  • Follow the unanticipated. Keep an open mind about where the payoff from IT and e-business projects may come.
business case approach evaluating
Business Case Approach – evaluating
  • A business case is a written document used by managers to garner funding for specific applications or projects
  • Its major emphasis is the justification for the required investment
  • It also provides the bridge between the initial plan and its execution by incorporating the foundation for tactical decision making and technology risk management. The business case helps:
    • to clarify how the organization will use its resources
    • justifying the investment
    • to manage the risk
    • determine the fit of an IT project with the organization’s mission
evaluating and justifying it investments
Evaluating and Justifying IT Investments
  • IT investments pose different problems
  • Though the relationship between intangible IT benefits and performance is not clear, some investments are better than others
  • Appraisal methods
    • Financial (NPV & ROI) methods consider only impacts that can have monetary value. They focus on incoming and outgoing cash flows.
    • Multi-criteria (information economics and value analysis) appraisal methods consider both financial and non-financial impacts that cannot be expressed in monetary terms. These methods employ quantitative and qualitative decision-making techniques.
    • Ratio (IT expenditures v. total turnover) methods used several ratios to assist in IT investment evaluation.
    • Portfolio methods apply portfolios (or grids) to plot several investment proposals against various decision-making criteria.
total cost of ownership value analysis
Total cost of ownership (TCO) includes:

Acquisition cost (hardware & software)

Operations costs (maintenance, training, operations, etc.)

Control cost (standardization, security, central services)

Value analysis evaluates intangible benefits on a low-cost, trial basis before deciding whether to commit to a larger investment in a complete system.

Total cost of ownership & Value analysis
total cost of ownership pc s
Desktop hardware



Systems management

Storage management

Operations labor

Help desk costs



End user costs

Hidden costs

Total Cost of Ownership – PC’s
one representative sample
One representative sample…
  • Thin clients versus thick clients
    • Thin clients (minimal storage, a.k.a. networked PC) - $ 3,787 per year
    • Thick clients (traditional PC) - $ 6,880 per year
  • Multiply that difference by say, 500-1000, and I think you see a trend developing
information economics
Information economics
  • Organizational objectives
  • Intangible benefits
  • Scoring methodologies
    • Evaluate alternatives by assigning weights and scores
      • Identifies all key performance issues
      • Assigns weights
      • Scores each issue
      • Multiply score by weighting factor and totaled
      • Highest weighted score is judged best
real option valuation of an it investment
Real Option Valuation of an IT Investment
  • Recognizes IT investments can increase future performance
  • Looks for opportunities embedded in capital projects
  • If taken, these may enable the organization to alter future cash flows in a way that will increase profitability
  • Looks at opportunity cost
  • Common types of real options
    • The option to expand a project (so as to capture additional cash flows)
    • The option to terminate a project that is doing poorly (to minimize losses)
    • The option to accelerate or delay a project
  • Appropriate when:
    • most decisions based on the assumption that investments are strategic
    • expected returns cannot be readily measured in monetary terms
    • A lot of web-based systems might fit into this category
balanced scorecard activity based costing expected value
Balanced Scorecard, Activity-Based Costing & Expected Value
  • The balanced scorecard method evaluates the overall health of organizations and projects. It advocates that managers focus not only on short-term financial results, but also on four other areas:
    • finance, including both short- and long-term measures
    • customers (how customers view the organization)
    • internal business processes (finding areas in which to excel)
    • learning and growth (the ability to change and expand)
  • Activity-based costing (ABC) views the value chain and assigns costs and benefits based on the activities.
  • Expected value (EV) of possible future benefits by multiplying the size of the benefit by the probability of its occurrence.
tracking allocating the costs of it is
Tracking/allocating the costs of IT/IS
  • Accounting systems should provide an accurate measure of total IT costs for management control
  • Users should be charged for shared IT investments and services in a manner that is consistent with the achievement of organizational goals
  • Chargeback
    • All expenses go into an overhead account. With this approach, IT is “free” and has no explicit cost, so there are no incentives to control usage or avoid waste.
    • Cost recovery is an approach where all IT costs are allocated to users as accurately as possible, based on cost and usage levels.
    • Behavior-oriented chargeback systems set IT service costs in a way that meets organizational objectives, even though the changes may not correspond to actual costs.
costing it economic strategies
“Costing” IT – Economic Strategies
  • Outsourcing
    • A strategy for obtaining the economic benefits of IT and controlling its costs by obtaining IT services from outside vendors rather than from internal IS units within the organization.
  • Offshore outsourcing of software development
  • ASPs & Utility Computing – Application service providers manage and distribute software-based services and solutions from a central, off-site data center via the Internet.
  • Management service provider – a vendor that remotely manages and monitors enterprise applications.
outsourcing benefits concerns

Avoid heavy capital investment, flexibility

Improve cash flow and cost tracking

Economies of scale

Better access to latest technologies & skillsets

More choice of platforms and software

Faster development

Focus on own “knitting”

Less IT/IS staffing issues

Clearly defined service levels

Load balancing


No strategic advantage from IT/IS

Control over application development

Dependent on vendor viability

Creates potential redundancies

Provider will service other companies (maybe competition), diluting their interest in you

The loss of talent generated internally in IT/IS

Employees may react badly

Security concerns

Outsourcing Benefits & Concerns
managerial issues2
Managerial Issues
  • Constant growth and change
  • Shift from tangible to intangible benefits.
  • Not a sure thing
  • Chargeback
  • Risk
  • Outsourcing
  • Increasing returns
  • What happens when it fails?