Strategic Management of Information Technology Investments ...
Chapter 10 Managing Information Systems and Technology Investments.
Transcript of Chapter 10 Managing Information Systems and Technology Investments.
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