MANAGING INFORMATION TECHNOLOGY 7th EDITION CHAPTER 10 METHODOLOGIES FOR PURCHASED SOFTWARE PACKAGES Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

THE MAKE-OR-BUY DECISION . - In large companies today, application software is typically both custom developed and purchased. In small businesses, software is typically purchased. Why? Make Better fit for company’s needs Buy Cost savings Faster speed of implementation Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

THE MAKE-OR-BUY DECISION Advantages and Disadvantages of Purchasing Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

PURCHASING METHODOLOGY Initiating the Purchasing process Development of a high-level cost estimate - with business manager and IS analyst input Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

PURCHASING METHODOLOGY The Purchasing Steps Steps for purchasing application packages fit into the three SDLC phases (referred to as the modified SDLC approach) Fig 10.1 Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

PURCHASING METHODOLOGY The Purchasing Steps, continued In comparison to an SDLC methodology, the Definition phase has additional steps, and the Construction phase is greatly reduced. In special circumstances, if the package is new, the purchaser may play a major role as an Alpha or Beta site for the vendor: - Alpha site: plays a role in determining the final functionality and user interface design for the new package - Beta site: plays a role in user acceptance testing α β Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

PURCHASING METHODOLOGY Definition Phase Two traditional SDLC steps: Five additional steps: Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

DEFINITION PHASE Feasibility Analysis Determine whether the proposed system is economically, technically, and operationally feasible In addition, the feasibility of purchasing rather than building the system is considered - Preliminary investigation of available packaged systems - Detailed cost-benefit analysis for budgeting and monitoring purposes Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Requirements Definition DEFINITION PHASE Requirements Definition As when creating custom software, Requirements Definition is a critical step in the purchase methodology But rather than create detailed requirements for in-house custom development, this step focuses on defining functional requirements needed to develop a Request for Proposal (RFP) Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Create Short List of Suitable Packages DEFINITION PHASE Create Short List of Suitable Packages Eliminate all but a few promising candidate packages Evaluate: - Available features of a package - Compatibility with current hardware and software - Vendor track record Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Establish Criteria for Selection DEFINITION PHASE Establish Criteria for Selection Business and IS team members work together to determine relevant criteria to select the best package Some criteria may be mandatory, while others may be desirable Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Develop and Distribute RFP DEFINITION PHASE Develop and Distribute RFP Request for Proposal (RFP): A formal document sent to potential vendors inviting them to submit a proposal describing their software package and how it meets the company’s needs Gives vendors information about: - System’s objectives and requirements - Environment in which the system will be used - General criteria used to evaluate proposals - Conditions for submitting proposals Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Example of Content in RFP DEFINITION PHASE Example of Content in RFP Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

DEFINITION PHASE Choose Package Collect data from: - Vendors’ responses from RFPs - Vendor demonstrations (for a few leading packages) References from users in other companies Project team evaluates how well available packages meet company’s needs Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

DEFINITION PHASE Negotiate Contract Use of an attorney for contracting with a vendor reduces likelihood of future legal problems Contract type has implications for the risk level of the purchasing company - for fixed-price contracts, the purchasing company knows the total price in advance - for cost-reimbursement contracts, the purchasing company pays the vendor’s direct and indirect costs and thus assumes a much greater risk Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

PURCHASING METHODOLOGY Discrepancies between needs and package capabilities will need to be dealt with by: - Modifying the package - Changing internal procedures - Living with the differences Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

CONSTRUCTION PHASE System Design and Building steps are only necessary if modifications are to be made to the package. However, essentially all packages will require “configuring” the package to meet the organization’s needs by making choices using pre-programmed templates by the vendor. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

CONSTRUCTION PHASE System Design and Building: - Typically the vendor does not provide the source code for the package, so the company typically contracts with the vendor (or a certified third party firm) for modifying the package. Changes may also be required for other existing company systems that interface with the package. System Testing: - User acceptance testing of configured package (and/or modified package) IS specialist or vendor testing on organization’s equipment Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

IMPLEMENTATION PHASE Same three steps as for Implementation phase for custom development: Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

IMPLEMENTATION PHASE Installation Installation planning, training, data cleanup, and conversion Success dependent on: - Quality of vendor support Package size and complexity Special attention needs to be given to training, especially if there are significant changes in the way employees do their work Change management is a set of activities designed to help overcome resistance by business users to the new system Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

IMPLEMENTATION PHASE Operations Operations is the same, whether the package was built or bought Initial success highly dependent on good communication with the vendor Long-term success also dependent on how well the system has been integrated into the company’s ongoing operations Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

IMPLEMENTATION PHASE Maintenance Most common = vendor handles package maintenance, as specified in the contract Advantage: Can lead to significant cost avoidance over the life of the system Disadvantages: - Purchasing company totally dependent on vendor for future system changes - May not get specific changes that the company wants Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

PURCHASING METHODOLOGY Project Team Project manager: usually is an IS manager, but may be a business manager (or both) IS analysts and IS specialists who will operate the system Representatives of key business managers and users Software vendor personnel Sometimes a third-party implementation partner (other than vendor) For contracting: purchasing specialists and attorneys Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

ENTERPRISE SYSTEM PACKAGES Enterprise Resource Planning (ERP) systems are software packages designed to integrate all departmental and functional systems into a single integrated system Packages are more complex to implement because they can impact an entire enterprise Companies purchase to achieve business benefits and IT platform benefits, such as: - Enables access to integrated data for better decision making - Takes advantage of client/server platform Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

ENTERPRISE SYSTEM PACKAGES Five Factors for Successful ERP implementation: Top management is engaged in the project, not just involved Project leaders are veterans, and team members are decision makers Third parties fill gaps in expertise and transfer their knowledge Change management goes hand-in-hand with project planning A satisficing mind-set prevails . Source: Brown and Vessey, MIS Quarterly Executive, 2003 Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

OPEN SOURCE SOFTWARE Open Source Software Free to acquire, so lower upfront costs Ability to access and modify the source code Third parties also provide fee-based products: - Advanced features for the product - Maintenance and training - Documentation and manuals Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Open Source Software Licensing There are many different licenses for open source software All allow for the modification and redistribution of source code, but some have conditions or restrictions It is important for managers to be aware of the specific terms of a license so that they are not violated Open Source Licenses Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

OPEN SOURCE SOFTWARE Advantages - Large pool of volunteer testers and developers - Ability to modify source code - Not dependent on a single vendor - Acquisition cost is the same for one copy or thousands - May use the software for any purpose - May be easier to interface open source packages with each other Open Source in the Enterprise Open Source Applications Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

OPEN SOURCE SOFTWARE Disadvantages - No complete documentation without paying for it - May not be viable for software that is not common to many organizations - Different adopters may duplicate efforts in development - Must be careful in choosing a licensing agreement that fits the company’s needs Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

APPLICATION SERVICE PROVIDERS (ASPs) Purchaser elects to use a “hosted” application rather than to purchase the software application and operate it in-house Company pays ASP vendor for delivering the software functionality over the Internet to company employees (and sometimes business partners) ASP vendor = an ongoing service provider Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

APPLICATION SERVICE PROVIDERS (ASPs) ASP Advantages - Cost savings and faster speed of implementation Usually involves monthly fees rather than large infrastructure investment ASP Disadvantages - Dependence on an external vendor for both software and ongoing operations - Contract based on initial estimates of required service levels Customization by ASPs by 2004 Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

APPLICATION SERVICE PROVIDERS (ASPs) Service Level Agreement (SLA) specifies performance expectations for the ASP, including: - System uptime - Recovery time - Wait time on calls to the help desk - Notifications about software upgrades - Other factors important to the customer This agreement should be a key part of the ASP contract Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

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