UNDERSTANDING THE BUSINESS VALUE OF SYSTEMS AND MANAGING CHANGE 15 UNDERSTANDING THE BUSINESS VALUE OF SYSTEMS AND MANAGING CHANGE

LEARNING OBJECTIVES EVALUATE MODELS DETERMINING BUSINESS VALUE OF INFORMATION SYSTEMS ANALYZE PRINCIPAL CAUSES OF INFORMATION SYSTEM FAILURE ANALYZE REQUIREMENTS FOR BUILDING SUCCESSFUL SYSTEMS SELECT STRATEGIES TO MANAGE SYSTEM IMPLEMENTATION

Challenges Not Tangible Determining benefits of information systems Dealing with the complexity of large scale implementations Large organization, wide area Many staff members, users requirements Technology choices, making a decision Political impact, manager bias

UNDERSTANDING BUSINESS VALUE OF INFO SYSTEMS Does a particular IS investment produce sufficient returns to justify its costs? Three approaches: CAPITAL BUDGETING MODELS PORTFOLIO ANALYSIS REAL OPTIONS PRICING MODEL (Skip this one)

Capitol Budget Cash flow in and out of the firm is the basis. Several methods are can be used to justify IS technology within Capital Budget. Process for analyzing and selecting various proposals for capital expenditures. Cash flow in and out of the firm is the basis. PAYBACK METHOD: How long will it take to pay back the investment? Org inv / annual net cash inflow = # years

Capitol Budget Net ben / total initial invest = ROI RETURN ON INVESTMENT: Does return during useful life of an item exceed the cost to borrow money? (Total ben – cost – depriciation) / useful life = net Ben Net ben / total initial invest = ROI COST-BENEFIT RATIO: Does the ratio of benefit versus cost exceed 1? Total ben / total cost = cost-ben ratio

Capitol Budget PROFITABILITY INDEX: What is the ratio of present value of cash inflow to initial investment? NET PRESENT VALUE: Accounting for cost, earnings & time value of money what is the investment worth? INTERNAL RATE OF RETURN: Accounting for the time value of money, what is the return rate of an investment?

Costs COSTS: HARDWARE SOFTWARE SERVICES PERSONNEL

Benefits TANGIBLE BENEFIT: INCREASED PRODUCTIVITY LOW OPERATING COSTS REDUCED WORK FORCE LOWER COMPUTER EXPENSES LOWER VENDOR COSTS LOWER CLERICAL/PROFESSIONAL COSTS REDUCED GROWTH OF EXPENSES REDUCED FACILITY COSTS

More Benifits INTANGIBLE BENEFIT: IMPROVED ASSET USE; RESOURCE CONTROL; PLANNING INCREASED FLEXIBILITY MORE TIMELY INFORMATION INCREASED LEARNING ATTAIN LEGAL REQUIREMENTS ENHANCED EMPLOYEE GOODWILL, JOB SATISFACTION, DECISION MAKING, OPERATIONS HIGHER CLIENT SATISFACTION BETTER CORPORATE IMAGE

CAPITAL BUDGETING MODELS LIMITATIONS: Assume all relevant alternatives have been examined; cost & benefits can be expressed as $$ Ignores intangible benefits Cost are usually up front and tangible Benefits are usually back loaded and intangible.

PORTFOLIO ANALYSIS: ANALYSIS OF POTENTIAL APPLICATIONS TO DETERMINE RISKS & BENEFITS DETERMINE DESIRABLE FEATURES, ACCEPTABLE RISKS OF REQUIRED SYSTEM GENERATE PORTFOLIO OF CHARACTERISTICS, RISKS FOR EACH ALTERNATIVE Usually a SCORING MODEL is used. Sometime is it more just a matter of group consensus on priorities benefit versus risk

Risk Matrix Scoring Project Risk High Low Cautiously Examine Identify and Develop High Potential Benifit Avoid Routine Projects Low

Typical Scoring Model IDENTIFY DESIRABLE FEATURES Totals TO 1.00 PROVIDE WEIGHTS FOR EACH Totals TO 1.00 LOOK AT EACH ALTERNATIVE: WHICH FEATURES ARE PRESENT? TO WHAT EXTENT (as an amount)? SCORE THE ALTERNATIVE 1-5highest RANK-ORDER THE ALTERNATIVES SELECT HIGHEST RANKED OPTION

Change Management Causes of implementation failure: DESIGN DATA COST OPERATIONS

Change Agent DURING IMPLEMENTATION, INDIVIDUAL ACTS AS CATALYST DURING CHANGE PROCESS TO ENSURE SUCCESS

FACTORS IN IMPLEMENTATION OUTCOME CAUSES OF SUCCESS OR FAILURE: USER INVOLVEMENT & INFLUENCE MANAGEMENT SUPPORT LEVEL OF COMPLEXITY / RISK MANAGEMENT OF IMPLEMENTATION PROCESS

User Designer Gap DIFFERENCES IN BACKGROUNDS, INTERESTS, PRIORITIES IMPEDE COMMUNICATION AND PROBLEM SOLVING AMONG END USERS AND INFORMATION SYSTEMS SPECIALISTS

User Concerns WILL SYSTEM DELIVER INFORMATION I NEED? HOW QUICKLY CAN I ACCESS DATA? HOW EASILY CAN I RECEIVE DATA? HOW MUCH CLERICAL SUPPORT WILL I NEED FOR DATA ENTRY? HOW WILL SYSTEM OPERATION FIT INTO MY DAILY BUSINESS SCHEDULE?

Designer Concerns HOW MUCH DISK SPACE WILL MASTER FILE CONSUME? HOW MANY LINES OF PROGRAM CODE WILL THIS FUNCTION TAKE? HOW CAN WE REDUCE CPU TIME? WHAT IS THE MOST EFFICIENT WAY OF STORING THIS DATA? WHAT DATABASE MANAGEMENT SYSTEM SHOULD WE USE?

Level of Complexity and Risk PROJECT SIZE PROJECT STRUCTURE EXPERTISE WITH TECHNOLOGY

Controlling Risk LOW HIGH SMALL LARGE VERY HIGH VERY LOW MEDIUM-LOW STRUCTURE TECHNOLOGY LEVEL SIZE RISK

CONSEQUENCES OF POOR PROJECT MANAGEMENT COST OVERRUNS TIME SLIPPAGE TECHNICAL SHORTFALLS FAILURE TO OBTAIN BENEFITS

CAUSES OF POOR PROJECT MANAGEMENT IGNORANCE & OPTIMISM MYTHICAL MAN-MONTH: Many tasks sequentially linked, require training. Adding more chefs will not improve the stew. FALLING BEHIND: Bad news travels slowly upward

Challenges ENTERPRISE SYSTEMS: High risk of failure, replacing legacy systems, myriad interconnections BUSINESS PROCESS REENGINEERING: 70% failure rate, deeply rooted in old processes, employees often unprepared

Change Management Challenges MERGERS & ACQUISITIONS: may produce a decline in shareholder value(70% do) difficult to integrate company systems organizational change, worker morale

Implementing Change CONTROL RISK FACTORS: Gear tools, methodologies to level of risk Technical complexity managed with: INTERNAL INTEGRATION TOOLS Technical Project Manager Project management managed with: FORMAL PLANNING TOOLS FORMAL CONTROL TOOLS

Formal Planning Tools PROGRAM EVALUATION & REVIEW TECHNIQUE: Diagram of project activities, sequential and concurrent, shows interactions of activities GANTT CHART: Shows activities as bars along a time line, with beginning, end of each task THESE PROVIDE SCHEDULES

Tools BUDGET: Time, money, resources MONITOR PROGRESS: Completion of tasks, fulfillment of goals CONTROL RISK FACTORS: Cost/benefits

External Integration LINK ALL USERS THROUGHOUT ORGANIZATION USE END USERS AS TEAM MEMBERS SHARE INFORMATION & PROGRESS INCLUDE TRAINING AVOID COUNTERIMPLEMENTATION

Organizational Issues ORGANIZATIONAL IMPACT ANALYSIS: How will system impact structure, attitudes, decision-making, operations SOCIOTECHNICAL DESIGN: Explore group structures, task allocation, job design for human factor

The End Questions