Keith Girling Panel 1 Information Systems and Professional Issues 2007 (BMAN 30801) – Session 2 Monday 8th October hours Roscoe Building Lecture Theatre B Keith Girling – Visiting Professor Module Text: “Professional Issues in Information Technology” – Frank Bott 2005

Keith Girling Panel 2 Objectives For Today 8 th October? First of TWO sessions on the BUSINESS context for IT Challenging but Fundamental The “Eastenders” syndrome Text Chapters 5, 6, 7, 8 Consider Business Start-Up; the role of CAPITAL Consider the concept of INVESTMENT Next session about ACCOUNTING

Keith Girling Panel 3 Remind ourselves of our “mind-map” Professional Issues in Information Technology PROFESSIONS (4) Data Protection S/W Contracts Anti-discrimination LAW & GOV’T (3) IPR Nature Bodies Internet Misuse ORGANISATIONS (2) HR Issues Financial Accounting BUSINESS (1) Capital Management Accounting Investment Structure and Management

Keith Girling Panel 4 Why do we need capital? What are the different types of “commercial” venture? “Great Aunt Maud” Best ideas and intentions are purely academic unless vehicle for delivery Set-Up Costs Leads and Lags

Keith Girling Panel 5 The Business Plan “To manage is to forecast and plan, to organize, to command and to control” (Henri Fayol ) Convince Others/Control Consists of: –Objectives, Feasibility –Markets –Control Systems esp. Financials

Keith Girling Panel 6 Sources of Finance To Begin With: Money You’ve got –Savings –Inheritance –Grants Money You Can Borrow –Loans –Equity Capital Ongoing: Retained Profits New Finance

Keith Girling Panel 7 “The Dragon’s Den” – Gearing? Benefits v Risks Control

Keith Girling Panel 8 Investment Appraisal 1.Not to turn us into Accountants! 2.The Time Value of Money 3.Discounted Cash Flow 4.Applying DCF to propositions 5.Limitations of DCF

Keith Girling Panel 9 Investment Appraisal – 2. The Time Value of Money What is money in the future worth now? Need to assume an “interest” rate Use tables and spreadsheets because of “compound” calculations Make assumptions about expenditures and income and when these occur “ the discount factor for a discount rate of 8 per cent over a period of four years is This means that, if the discount rate is 8 per cent, the present value of a sum of £1,000 payable in four years time is £1000 x £735.”

Keith Girling Panel 10 Investment Appraisal - 3. Discounted Cash Flow Example Page 87 – a computer maintenance company is considering whether to invest in a second van or continuing to rent a van at peak times - ASSUMPTIONS: New Van Costs £10,000 – Annual Insurance £500, Road Tax £150 –Maintenance £200 first two years, £300 year 3, £400 year 4, £500 year 5 –At end year 5, van is sold for £2,000 (year 5 value) Interest Rate company pays on borrowings is 10% Van Hire costs are £30 per day and hires for 100 days per year All cost subject to 5% inflation over the period Total NPV over 4 years of buying new van = £13,030 Total NPV over 4 years of renting = £15,980 BUT companies (usually the Finance Director) will factor in many more variables for example costs of money from different sources, and opportunity costs

Keith Girling Panel 11 Investment Appraisal - 4. Applying DCF to Propositions Example Page 90 – Developing a Software Product Introduces other important concepts –Cumulative Present Value –Pay-back Period –Internal Rate of Return (IRR)

Keith Girling Panel 12 Investment Appraisal - 5. Limitations of DCF Let’s do a “risk analysis” on a software development project?

Keith Girling Panel 13 Summary Remind ourselves of objectives for today –First of TWO sessions on the BUSINESS context for IT –Challenging but Fundamental –Text Chapters 5, 6, 7, 8 –Consider Business Start-Up; the role of CAPITAL –Consider the concept of INVESTMENT –Next session about ACCOUNTING Actions? –Get access to the Book! –Digest Chapters 5, 6, 7, 8 Next session about ACCOUNTING THEN – we’ll get onto some of the more compelling stuff!