Chapter 13 / 14 / 16 / 17 IT Strategy and Planning / Managing IT Projects/ Acquiring IT Applications and Infrastructure / IT Economics Information Technology For Management 6 th Edition Turban, Leidner, McLean, Wetherbe Based on lecture slides by L. Beaubien, Providence College John Wiley & Sons, Inc. 1
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 2
IT Strategic Alignment 3
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 4
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. 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. 5
Strategic Information Technology Planning Several methodologies exist to facilitate IT planning. 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 6 business development.
Strategic Information Technology Planning 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. 7
Critical Success Fatcors Critical success factors (CSFs) 8
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) 9
Portfolio Approaches - Example 10
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,...) 11
Evaluation of IT Benefits 12
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. 13
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,...). 14
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,...) 15
Event-Driven-Process Chains Developed by A.-W. Scheer Used 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 16
Event-Driven-Process Chains Edges Directed (flows) Undirect (organizational units) Rules Functions and events alternate Start and end is an event 17
Event-Driven-Process Chains Example Stock data Logistics XOR Order came in Check order Product not available Produce product Product available Logistics Pack product Stock data 18
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. 19
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. 20
Benefits of IT 21
Benefit Quantification Methods Better Information - Value of (Perfect) Information Model Probability State A (0.2) State B (0.3) State C (0.4) State D (0.1) Alternative 1 5 Alternative 2 3 Alternative 3 4 7 5 5 2 3 5 6 3 6 Result 22
Benefit Quantification Methods Decision based on expected value E(A 1 ) = 0.2*5 + 0.3*7 + 0.4*2 + 0.1*3 = 4.2 E(A 2 ) = 4.7 E(A 3 ) = 4.1 -> choose A 2 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 23
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,..) 24
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,...) 25
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 26
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 27
Specific Evaluation Methods 28
Strategies for Acquiring IT Applications Buy the applications (off-the-shelf approach) Lease the applications Developing the applications in-house (Insourcing) 29
The Five Major Steps of Acquisition 30
Buying IT Applications 31
Vendor and System Selection Determine candidates Determine factors and weights Costs Functionality Support GUI Market standing... Assess and grade candidates Aggregate by grade x factor and choose Negations (licencing, service-level agreement,...) 32
Selection of Vendors 33
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 34
Outsourcing 35
ASP 36
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. 37
Traditional Systems Development Life Cycle Software 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. 38
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. 39
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. 40
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 41
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. 42
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. 43
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. 44
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. 45
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. 46
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. 47
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. 48
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 49
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 setup, 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),... 50
Alternative Methods & Tools for Systems Development 51
Case Studies Prepare the Mini Case of Chapter 13 (American Apparel) from the textbook for next class session. 52