13-1 Information Technology Economics. 13-2 Information Technology: Economic and Financial Trends Internal IT versus outsourcing Expanding power / declining.

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Presentation transcript:

13-1 Information Technology Economics

13-2 Information Technology: Economic and Financial Trends Internal IT versus outsourcing Expanding power / declining costs Moore’s law - price to performance ratio Technically versus economically feasible Intangible benefits - difficult to access

13-3 Explaining the Productivity Paradox Data and analysis problems hide productivity gains IT productivity offset by losses in other areas IT productivity offset by IT costs or losses Wasted time

13-4 Explaining the Productivity Paradox Software development problems Software maintenance Incompatible systems

13-5 Evaluating IT: Benefits and Costs Value of information in decision making Evaluating automation by cost-benefit analysis Evaluating IT infrastructure Evaluating IT performance: service level agreements

13-6 Evaluation of Intangible Benefits Use concrete indicators Solve for an unknown Prevent competitive disadvantage

13-7 Evaluating IT Infrastructure Through Benchmarks Metric benchmarks Best practices benchmarks

13-8 Metric Benchmarks IT expenses as percent of total revenues Percent of “down-time” CPU usage as percent of total capacity Percent of IS projects completed on time and within budget

13-9 Evaluating IT Performance: Service Level Agreements Meet with the client to determine IT service IS and client jointly determine measures Schedule of measurements Jointly determine action should service fail Written document

13-10 Evaluation IT: Perspectives on Intangible Benefits Value analysis Information economics Management by maxim for IT infrastructure Option valuation of IT investments

13-11 Value Analysis

13-12 Information Economics Key organizational objectives Scoring methodology

13-13

13-14 Management by Maxim for IT Infrastructure Consider strategic context Articulate business maxims Identify IT maxims Clarify the firm’s view of its IT infrastructure Specify infrastructure services

13-15 Option Valuation of IT Investments Future returns Expected value Future decisions

13-16 Evaluating IT: Accounting for Costs Accurate measure of IT costs Charge users for IT investments - organizational goals Chargeout Outsourcing as an economic strategy

13-17

13-18 Behavior-Oriented Chargeout System: Implementation Determine objectives Determine appropriate measures Implement and maintain the system

13-19 Outsourcing As an Economic Strategy Core competencies Which sources are less expensive How much control is needed

13-20 Outsourcing Advantages and Disadvantages Hardware economies of scale Staffing economies of scale Specialization Tax benefits

13-21

13-22 Outsourcing Disadvantages Limited economies of scale Staffing Lack of business expertise Contract problems Internal cost reduction opportunities

13-23 Outsourcing Recommendations Write shorter contracts - less than 5 years Subcontract control Selective outsourcing

13-24

13-25 Negative Impacts of Failures and “Runaways” Outright failure Abandoned Scaled down Runaway

13-26 The New Economics of IT IT as a product World Wide Web (WWW) Increasing returns

13-27 The New Economics of IT World Wide Web (WWW) At least 33% of US population Foreign markets Universal connectivity

13-28 Increasing Returns Increasing returns occurs where profitability rises more rapidly than production increases.

13-29 Increasing Returns: Advantages Higher profitability Network effects Lock-in effect

13-30 Management Strategies Under Increasing Returns Build a large customer base through low prices Encourage development of complementary products Use linking and leveraging

13-31 Managerial Issues Constant growth and change Shift from tangible to intangible benefits Not a sure thing Chargeout Risk Outsourcing Increasing returns

13-32 Copyright  1999 John Wiley & Sons, Incorporated. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner in unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Son, Inc. Adopters of the textbook are granted permission to make back-up copies for his/her own use only, to make copies for distribution to student of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.