Introduction to IT investment decision-making

Pertemuan 1-2

Matakuliah : A0784 - Strategi Investasi ITTahun : 2009

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Introduction

•Positive relationship between spending on IT and its contribution to profitability•Connection between capital investment in IT and productivity or performance of a company•Exploring methodologies that will give optimal solution to managers facing IT investment decision

Types of IT investment decision-making problems

• What are most appropriate quantitative methods and techniques for IT evaluation?

• What quantitative and qualitative measures can be used in the assessment of IT investment?

• How can we provide objectively IT decision when we use highly complex criteria?

• How do we choose the best alternative from IT projects?

• How can we justify IT decisions?

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What are IT investment?• Investing in equipment, application, service, and

basic technology• Expenses associated with acquiring computer,

communication, software, network and personnel• Investment decision of allocating types of

resources (human, monetary, physical) to an MIS• MIS : collection of four primary components ;

personnel, application software, system software, and hardware see figure 2

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IT Methodologies• Analytical hierarchy • Balance scorecard• Critical success factors• Decision theory• Accounting rate of return• Delphi method• Satisfaction and priority surveys• Game theory• Payback period• Information economics

See table 2

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Limitations of methodologies• Limit what kinds of factors they can consider• Not being able to include the right combination of

decisions factors or criteria• Do not always keep to a predicted time table• Higher risks than other capital investments

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Classes of IT risk• Physical risks : vulnerability of computer

hardware, software, data theft, sabotage, piracy, deletion, security

• Managerial risk : failure to achieve benefit or cost reduction, desired time frame, end-user resistance, inability of system, incompatibility issues

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Why study IT investment?• Advancement in technology can give competitive

advantage of improvement in communicating to customer, over the competitor, or within partnering companies.

• Poor IT investment can increase capital cost, interest cost, delay customer order, disrupt communication, and decrease employee morale.

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Organizational planning in IT investment

• Strategic planning : senior managers to be involved in developing specific systems to implement corporation strategy

• Tactical planning : middle managers will implement the goals and objectives defined at prior stage

• Operational planning : more detailed, day to day work effort is planned and scheduled.

See figure 3

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MIS planning of IT systems1. External analysis of competition and threats2. Internal analysis of firm’s strengths and weaknesses3. Overall corporate strategic planning4. MIS functional area strategic planning5. Process and systems engineering6. Configuration and functionality analysis7. IT system evaluation and justification8. IT system implementation9. Post implementation analysis

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System implementation strategies• Direct conversion• Parallel conversion• Phased conversion• Pilot conversion See table 3

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