Chapter 10 Ranking and Value Management of Computer System Performance

2 Agenda Chapter 10 Objective: Students should be able: to apply ranking and scoring to IT application. Ranking and Value

3 Ranking and Scoring The concept of Ranking and Scoring IT Systems as a basis for strategic decision making is recognized by most firms as a valid approach. This approach involves creating a matrix of projects, a value criteria, their associated weights and then calculating the benefit of the project.

4 Ranking and Scoring It is assumed that each of the variables (Value, weight and benefit) will be applied using set standards against each project. Ideally, those standards would be used for Ranking and Scoring all projects without significant changes over time (excluding business environment issues). This approach to IT evaluation is usually used on similar projects or activities.

5 Ranking and Scoring They have similar NPV, IRR (ROI) values. The financial analysis results in a general “ tie ”. The projects have similar collective benefits and usually all of the projects are needed by some group within the organization. It is not clear which is the “ best ” solution to undertake. The conflicting needs make it difficult select the solution that offers the greatest benefit to the firm.

6 Ranking and Scoring The general approach to ranking and scoring projects is as follows: Identify the criteria's against which the projects can be measured. Use a balanced approach and try not to skew the end result by creating criteria's that are clearly biased against one type of project or another. If you could do this legitimately, you ’ d already have the answer.

7 Ranking and Scoring Identify the weights of each criteria. Use a corporate standard that can equally apply to each criteria regarding its importance. Keep it balanced. Score each project on how they meet the criteria. Use a percentage. A valuation based upon 10% increments is usually recognized as being appropriate. (Score them on a ranking of 1 to 10, etc.) If you use multiple criteria, score each according to the same standard.

8 Ranking and Scoring Multiply the weight and the score for each criteria, add the criteria together and select the option with the highest score(s). Ranking methodologies are not easily found. Get a team of stakeholders together and work through it. Let them argue of their respective projects values. Do it solo and become a lightning rod!

9 Ranking and Scoring Some criteria that are often used are as follows: Strategic Value to the corporation Does it assist the company in meeting its strategic goals? Critical Value Is it needed to help the firm survive. Usually viewed as more of a short term project. (We just got a huge order. How do we manage the inventory without an Inventory Management system?)

10 Ranking and Scoring Operational Value This is more of a planned solution. (We ’ re growing and we need to implement an Inventory Management system.) Architectural Value This type of project will often establish a better basis for future IT projects. (The network is a kludge of Banyan, AppleTalk, Novell and TCP/IP. This will standardize on TCP/IP) Investment value Usually should include with secondary benefits in that the original ROIs were similar to begin with.

11 Ranking and Scoring Risk Assessment This associated with the technical and financial risk. A Risky project gets the lower score. The Ranking and Scoring method can be effective if and only if the scoring is done in an open manner and the criteria are not inherently skewed towards one project or another. If either of these elements occur, save time and use another method to evaluate the project. From an economic perspective, this is a tie breaker methodology,

12 Summary Ranking and scoring associates numeric values to aspects of the project. Supports comparative analysis between projects.

13 Individual Paper Due Pick one of the Enterprise using IT as part of its operational system and give an analysis using the spreadsheet given on the text book- page 211, fig and fig. 10.2