Information System Economics IT ACQUISITION

What is acquired?  Hardware:computers communications  Software:applications operating systems communications  Personnel:management development operating IT ACQUISITION

How is it acquired?  insourcing - DYI  outsourcing IT ACQUISITION

The growing importance of outsourcing IT ACQUISITION "ComNet 2000 Packed With Outsourcing Options"InfoWorld.com (01/25/00); Jones, Jennifer; Moore, Cathleen This week's ComNet 2000 show will feature a number of new products and services aimed at capitalizing on the growing corporate demand for network outsourcing. AT&T plans to announce outsourcing services for large clients that do not want to manage their own network operations.... Nortel plans to establish a group that will design and manage networking technology for large customers.... The rising interest in outsourcing stems from a lack of trained technical workers and the need for IS departments to devote time to mission-critical programs, experts say.

The Process IT ACQUISITION  determine needs  insource/outsource decision  collect information  evaluate  select  contract

Insourcing vs. Outsourcing: Hardware IT ACQUISITION Internal resources for capacity planning requirements analysis, selection etc. Vendor performs capacity planning, requirements analysis, selection, etc. Vendor performs installation & maintenance ACQUISITION RESOURCES Insource Outsource analysis & planning installation Adapted from: Nelson, Paul, William Richmond, & Abraham Seidmann. “Two Dimensions of Software Acquisition.” Communications of The ACM 39, 7 (July 1996):29-44.

Insourcing vs. Outsourcing: Software IT ACQUISITION Internal resources for needs analysis, coding, etc. Vendor performs needs analysis, coding, etc. Internal resources for package selection, installation, etc. Vendor performs package selection, installation, etc. ACQUISITION RESOURCES Insource Outsource custom package ACQUISITION SOURCE Adapted from: Nelson, Paul, William Richmond, & Abraham Seidmann. “Two Dimensions of Software Acquisition.” Communications of The ACM 39, 7 (July 1996):29-44.

Insourcing vs. Outsourcing: Operations IT ACQUISITION Own hardware, software, and personnel Own hardware, in- or outsource software & personnel Vendor’s hardware, own personnel, in- or outsource software Vendor’s hardware & personnel, in- or outsource software. RESOURCES Insource Outsource in-house at vendor’s location LOCATION Adapted from: Nelson, Paul, William Richmond, & Abraham Seidmann. “Two Dimensions of Software Acquisition.” Communications of The ACM 39, 7 (July 1996):29-44.

Evaluation purposes  selection evaluation (system exists elsewhere)  new hardware  new software  performance projection (system does not exist elsewhere)  design new software  design new hardware  performance monitoring (system in operation)  reconfigure hardware  change software IT ACQUISITION Evaluation

Evaluation methods  kernel programs  analytic models  benchmarks  synthetic programs  simulation  performance monitoring IT ACQUISITION Evaluation

Evaluation methods – kernel programs A kernel program is a typical program that has been partially or completely coded and timed. The timings are based on the manufacturer’s stated execution times for the instructions that comprise the kernel program. IT ACQUISITION Evaluation Uses: for evaluating machines which do not yet exist; for time-critical procedures Disadvantages: require machine language code; cannot adequately represent I/O and operating system interactions

Evaluation methods – analytic models An analytic model is a mathematical representation of a computing system. These are frequently based on queueing theory. IT ACQUISITION Evaluation Uses: for evaluating machines which do not yet exist; for specific machine components (e.g. a disk drive) Disadvantages: cannot capture all aspects of a computer’s functions; are most effective for higher level analyses – e.g. CPUs or complete systems

Evaluation methods - benchmarks A benchmark is an existing program that is coded in a specific language and executed on the machine being evaluated. IT ACQUISITION Evaluation Uses: esp. for evaluating and comparing potential replacement machines; for comparing overall performance of different machines and architectures Disadvantages: expensive; interpretation problems

Evaluation methods – benchmark interpretation problems IT ACQUISITION Evaluation Job I Machine AJob II Job III Job I Machine B Job II Job III time  suboptimal machine setup  “tailing”

Evaluation methods – synthetic programs Synthetic programs are coded and executed, but differ from benchmarks in that they do not necessarily exist beforehand. Like kernel programs, they are not real applications, but they are coded and they do include I/O considerations and interactions with the OS environment. Thus, they combine some of the attributes of benchmarks and of kernel programs. IT ACQUISITION Evaluation

Evaluation methods – synthetic programs IT ACQUISITION Evaluation Uses: selection – can be designed to include any measurement parameter of interest; good for before and after tests before executing changes Disadvantages: expensive to prepare; interpretation problems as with benchmarks; difficult to develop for online, terminal-based systems

Evaluation methods - simulation A simulation is a program which computes the results of running a real system, based on the characteristics of that system. It provides insight into the functioning of the system simulated. IT ACQUISITION Evaluation

Evaluation methods - simulation IT ACQUISITION Evaluation Uses: projecting outcomes of new designs; selection – but cost frequently prohibitive for comparing overall performance of different machines and architectures Disadvantages: expensive; validation problems – unless real results available for a similar machine; need to be adapted for each machine simulated

Evaluation methods – performance monitoring Consists of collecting data on an existing machine in order to locate bottlenecks or to improve system performance.  hardware monitors  software monitors IT ACQUISITION Evaluation Uses: evaluating and analyzing performance of existing systems; Disadvantages: the measurement problem (Heisenberg’s Uncertainty Principle); quantities of data generated;

Evaluation methods – Summary IT ACQUISITION Selection evaluation Performance Evaluation Projected Design Synthetic Programs, Benchmarks Simulation, Analytic Models Monitors Evaluation Techniques Purpose of evaluation primary use pecondary use

Selection Selection problems:  multiple alternatives  “apples vs. oranges”  approximate measurements  intangible economics  human factors  time  subjectivity IT ACQUISITION

Selection Selection methods:  ad hoc  weights and scores  cost-value  efficient frontier  sensitivity analysis IT ACQUISITION

Selection Methods weights and scores 1. determine criteria (c i ) 2. assign a weight to each criterion (w i ) 3. assign score to each criterion (s i ) 4. total score =  s i  w i IT ACQUISITION

Selection Methods Weights and scores – major problems 1.criteria set to predetermine solution 2. manipulation of scores 3. meaning of the final result Partial solutions:  separate setting criteria and weights from evaluation  sensitivity analysis IT ACQUISITION

Selection Methods Weights and scores – an example IT ACQUISITION criterionweightscore S i W i H/W S/W Service Cost total

Selection Methods Cost-value: cost is the sole basis for selection 1.determine and evaluate mandatory and desirable criteria 2.build value templates for “rewarding” or “fining” over and under performance 3. apply fines and bonuses 4. select lowest cost bid after corrections IT ACQUISITION

Selection Methods Cost-value: example of a value template Criterion: laptop computer weighs 2.5 kg IT ACQUISITION Over/under weightvalue 3.5 kg+$ kg+$ kg0 2.0 kg-$ kg-$300

Selection Methods Efficient Frontier as a Winnowing Method IT ACQUISITION Criterion 1 Criterion 2 A B D E C G F

Selection Methods Importance of Sensitivity Analysis IT ACQUISITION