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Chapter 13 / 14 / 16 / 17
IT Strategy and Planning / Managing IT Projects/
Acquiring IT Applications and Infrastructure / IT
Economics
Information Technology For Management 6th EditionTurban, Leidner, McLean, Wetherbe
Based on lecture slides by L. Beaubien, Providence College John Wiley & Sons, Inc.
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IT Strategic Alignment
Most important topic for IT management: IT and business alignment
Aligning IT strategy with business strateg IS priorities, decisions, processes in line with strategy Failure might result in huge expenditure without
busines value
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IT Strategic Alignment
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IT Planning
Organized planning of IT infrastructure and applications portfolios at various levels
Evolution of IT planning First steps were operational planning (per project) Later on, managerial (resource allocation control)
Levels of IT planning Strategic (long range): not concerned with specific
applications, sets overall direction for 5-10 years Medium-term: identifies application portfolio, ranks projects,
several years Short-term: one year, concerned with budgeting current
projects
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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.
Strategic Information Technology Planning
The first stage of the IT planning model identifies the applications portfolio through which an organization will conduct its business. This stage can also be expanded to include the process of searching for strategic information systems (SIS) that enable a firm to develop a competitive advantage. This involves assessing the current business environment and the future objectives and strategies.
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The business systems planning (BSP) model, developed by IBM, deals with two main building blocks which become the basis of an information architecture. Business processes Data classes
Stages Of IT Growth Model, indicates that organizations go through six stages of IT growth (can also be seen in the budget growth rates). 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.
Strategic Information Technology Planning
Several methodologies exist to facilitate IT planning.
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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 compile possible future events that may influence the outcome of each scenario.
Strategic Information Technology Planning
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Critical success factors (CSFs)
Critical Success Fatcors
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Resource Allocation
Main task in all planning processes Choose between projects (prioritize them) Allocate resources (money, manpower etc.)
Approaches Financial (evaluate projects according to Net Present Value,
Real Options, ROI,...) Portfolio approaches (based on strategic considerations, or
even optimized according to risk exposures) Multi-criteria approaches (projects are rated according to
several criteria which are then aggregated)
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Portfolio Approaches - Example
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Evaluating IT Investments
For resource allocation, we need to evaluate IT investments What value do they give to the company (financially,
strategically,...)? What will the costs be?
Productivity Paradox Studies on national level on impact of IT expenditure on
productivity First studies did not show positive impact, but several
problems with these studies (time lag, measurement,...)
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Evaluation of IT Benefits
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Rationalization of Procedures
Information Systems most effective if way of doing things is changed, not only automated
Refers to streamlining of standard operating procedures, eliminating obvious bottlenecks, so that automation makes operating procedures more efficient.
Improves efficiency and effectiveness.
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Some Definitions
A process is a structured, measured set of activities designed to produce a specific output.
A business process is a set of logically related tasks performed to achieve a defined business outcome.
Core business processes are the ones that are critical for success in the industry in which the company operates (e.g. order processing, new product development,...).
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Business Process Analysis
Process of modeling and analysing business processes Understand current processes (interviews,...) Model current processes (modeling techniques
include Petri net or EPCs) Propose different solutions (again using modeling
technique) Implement new solution for business process
(using training, different information systems,...)
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Event-Driven-Process Chains
Developed by A.-W. ScheerUsed by ARIS toolset, SAP ERP System,...Nodes
Event (passive, something happens) Function (active, something is done) Connector (logical, AND, OR, XOR)
Organisational Units Inputs & outputs
XOR
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Event-Driven-Process Chains
Edges Directed (flows) Undirect (organizational units)
Rules Functions and events alternate Start and end is an event
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Event-Driven-Process Chains
Example
XOR
Order came in
Check order
Product available
Pack product
Product not available
Produce product
Stock data
Logistics
Logistics
Stock data
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Event-Driven-Process Chains
Exercise Prepare an EPC for the following situation: An instructor is assigned a course. He prepares
the syllabus, and puts it on the web. Then he checks the registration list. If there are not enough students, the course is cancelled. Otherwise the course is held, and after it is finished, the instructor submits the grades. The grades are then put on the transcript by the registrar's office.
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Event-Driven-Process Chains
Exercise Prepare an EPC for the following situation: After a claim has arrived at an insurance
company, it is handled by an agent, who accesses the customer information in doing so. Then, if the claim is acknowledged, it is paid out by the finance department. If the claim is not acknowledged, it is checked by management. If management approves, the claim is also paid out by the finance department, if not, a letter is written to the customer by the customer relations department.
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Benefits of IT
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Benefit Quantification Methods
“Better” Information - Value of (Perfect) Information Model
State A(0.2)
Alternative 1 5
3Alternative 2
Alternative 3 4
7
5
5
2 3
5 6
3 6
State B(0.3)
State C(0.4)
State D(0.1)
Result
Probability
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Benefit Quantification Methods
Decision based on expected valueE(A1) = 0.2*5 + 0.3*7 + 0.4*2 + 0.1*3 = 4.2
E(A2) = 4.7
E(A3) = 4.1 -> choose A2
Perfect information means we know at each decision which state is to be realized
Expected value with perfect information: best alternative outcome for each state
0.2*5 + 0.3*7 + 0.4*5 + 0.1*6 = 5.7
Value of information is difference
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Benefit Quantification Methods
“Less work” - TSTS model 5% less work means 5% less personnel costs Only usable for layoffs, not for change in work profiles
“Less work, different work” - Hedonic model Hedonic models are concerned with what different
attributes or parts contribute to value of product or basket (example supermarket with only baskets of different quantity, cars etc.)
In this case, basket is an employee which offers several activities to the company (e.g. 10% management, 20% administration, 5% slack,..)
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Benefit Quantification Methods
For this, the price equals the salary If we have different employees, we can compute the
hedonic price per activity, which is the value for the company (what would somebody with 100% management earn?)
New IT system will change percentages for activitities (work profile), e.g. less slacks, less administration
New profile is valuated at hedonic prices, difference is benefit of the IT system (work is now worth more to company)
Several assumptions (motivation, skills,...)
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Costs of IT Investments
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, transaction costs,... Such costs can accumulate over many years, and sometimes they are not even anticipated when the investment is made. Approach of Total-Cost-of-Ownership (TCO): costs for
acquisition, operation and control
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Risks of IT Investments
IT projects also have risks which should be included in an evaluation Inherent risks (risk of failure) Technological risks Market risks ...
Portfolio methods can be used to optimize a portfolio of IT projects also according to risks
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Specific Evaluation Methods
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Strategies for Acquiring IT ApplicationsBuy the applications (off-the-shelf approach)
Lease the applications
Developing the applications in-house (Insourcing)
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The Five Major Steps of Acquisition
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Buying IT Applications
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Vendor and System Selection
Determine candidatesDetermine factors and weights– Costs– Functionality– Support– GUI– Market standing– ....
Assess and grade candidatesAggregate by grade x factor and chooseNegations (licencing, service-level agreement,...)
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Selection of Vendors
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Leasing IT Applications
The first way is to lease the application from an outsourcer and install it on the company’s premises. The vendor can help with the installation and frequently will offer to also contract for the operation and maintenance of the system. Many conventional applications are leased this way.
The second way, using an application system provider (ASP), is becoming more popular. Assembles, operates, maintains, supports,...
Software as a Service: software is rented, based on subscription
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Outsourcing
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ASP
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In-House Development
Build from scratch. This option should be considered only for specialized applications for which components are not available. It is an expensive and slow process, but it will provide the best fit.
Build from components. Companies with experienced IT staff can use standard components (e.g., a secure Web server), some software languages (e.g., Java, Visual Basic, or Perl), and third-party subroutines to create and maintain applications on their own.
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Traditional Systems Development Life CycleSoftware development life cycle is the
traditional systems development method that organizations use for large-scale IT projects.
SDLC processes are systems investigation, systems analysis, systems design, programming, testing, implementation, operation and maintenance.
Waterfall approach is when tasks in one phase are completed before the work proceeds to the next stage.
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System Development Teams
Users are employees from all functional areas and levels of the organization who interact with the system, either directly or indirectly.
System analysts are IS professionals who specializing in analyzing and designing ISs.
Programmers are IS professionals who modify existing computer programs or write new computer programs to satisfy user requirements.
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System Development Teams
Technical specialists are experts on a certain type of technology, such as databases or telecommunications.
System stakeholders are all people affected by changes in the information systems.
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SDLC – Systems Investigation
Begins with the business problem (or opportunity) followed by the feasibility analysis.
Feasibility study Technical Economic Behavioral Organizational
Go/No-Go Decision
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SDLC – Systems Analysis
Is the examination of the business problem that the organization plans to solve with an information system.
Main purpose is to gather information about existing system to determine requirements for the new or improved system.
Deliverable is a set of system requirements.
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SDLC – Systems Design
Describes how the system will accomplish this task.
Deliverable is the technical design that specifies: System outputs, inputs, user interfaces; Hardware, software, databases, telecommunications,
personnel & procedures; Blueprint of how these components are integrated.
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SDLC – Systems Design
Logical system design states what the system will do, using abstract specifications.
Physical system design states how the system will perform its functions, with actual physical specifications.
Scope creep is caused by adding functions after the project has been initiated.
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SDLC – Programming & Testing
Programming involves the translation of a system’s design specification into computer code.
Testing check to see if the computer code will produce the expected and desired results under certain conditions.
Testing is designed to delete errors (bugs) in the computer code. These errors are of two types . Syntax errors ( e.g., misspelled word or a misplaced comma) and logic errors that permit the program to run but result in incorrect output.
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SDLC – Systems Implementation
Implementation or deployment is the process of converting from the old system to the new system. Organizations use four major conversion strategies ; parallel , direct , pilot and phased.
Parallel conversion. Implementation process in which the old system and the new system operate simultaneously for a period of time.
Direct conversion. Implementation process in which the old system is cut off and the new system turned on at a certain point in time.
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SDLC – Systems Implementation
Pilot conversion. Implementation process that introduces the new system in one part of the organization on a trial basis, when new system is working property, it is introduced in other parts of the organization.
Phased conversion. Implementation process that introduces components of the new system in stages, until the entire new system is operational.
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SDLC – Operation & Maintenance
Audits are performed to assess the system’s capabilities and to determine if it is being used correctly.
Systems need several types of maintenance. Debugging: A process that continues throughout the
life of the system. Updating: Updating the system to accommodate
changes in business conditions. Maintenance: That adds new functionally to the
system –adding new features to the existing system without disturbing its operation.
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SDLC
Major advantages Control Accountability Error detection
Major drawbacks Relatively inflexible Time-consuming and expensive Discourages changes once user requirements are
done Changes in requirements, markets, competition can
not be included
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Alternative Methods & Tools for Systems Development General aims: reduce time and costs, reduce time to
market, increase flexibility, allow for learning,... Spiral- and prototyping approaches (several cycles of
development, each with more detail, every time including analysis, design, implementation and testing)
Agile approaches (short cycles of 1-2 months with certain functionality to be added, very informal in set-up, huge emphasis on continous testing to have a product which is always “finished”, examples include eXteme Programming or SCRUM)
RAD (Rapid Application Development), RUP (Rational Unified Process),...
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Alternative Methods & Tools for Systems Development
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Case Studies
Prepare the Mini Case of Chapter 13 (American Apparel) from the textbook for next class session.
