Chapter 13 Information Technology Economics

Agenda IT Organization IT Productivity IT Benefits Data Center Economics

IT Department CIO Operations Systems Development Support Computer facilities operations Data entry Systems analysis and design Programming Data administration Information center Information technology

Agenda IT Organization IT Productivity IT Benefits Data Center Economics

Measuring Productivity Traditional measure Function point analysis

Traditional Measure Source lines of code (SLOC) Lines of executable code (LOEC)

Function Point Analysis Count number with Low, Average, and High complexity Multiply by function weight Sum to arrive at function points

Function Point Analysis 5 functions are scored –amount of input (forms / screens) –Amount of output (reports / screens) –number of end-user queries –number logical files accessed / used –number interfaces to other applications

Productivity Paradox Not all investments in IT will result directly in productivity gains or decreased costs –Infrastructure Staging for future opportunities –Delayed benefits E-commerce

Agenda IT Organization IT Productivity IT Benefits Data Center Economics

Measuring Benefits What’s important to management? –Not always dollars –Customer relations –Employee morale –Cycle time –Ask, don’t assume

Measuring Benefits Use “Anchor” measures –Value of ratios for comparing across time and function –Sales per employee –Revenue per employee –Revenue per customer –Cost per transaction

Agenda IT Organization IT Productivity IT Benefits Data Center Economics

Budgeting Charge back Outsourcing

Budgeting 33% Systems and Programming –85% maintenance –15% new development decreasing 10% Administration / Training 57% IT Operations –Systems operators Operate hardware Schedule application runs Input / output preparation –Data-entry operators –Maintenance technicians

Charge-back No operating budget Charge clients for services Clients can shop elsewhere Centers can spend what they collect - NO MORE! Increasing quality at decreasing cost Strategies –Upgrade to latest equipment / software –Consolidation

Outsourcing Reasons –Overall business trend –Global competition –Need for technical specialists –Employee costs (fringe benefits) –Tax benefits

Outsourcing Types Professional services (consulting) Services (training / data entry) Temporary employees –Contract programmers Transactions (credit reports) Systems integrators

When to Outsource Activity not strategic Save at least 15% Need technology specialists Increase financial flexibility –Capital to operating expenses –Free personnel for development –Acquire new technologies quicker

What NOT to Outsource Strategy (IT Plan) Architecture –Tied to firm’s culture Portfolio (What / When) Vendor management

Preventing Outsource Failures Vendor expertise and sophistication Improved delivery quality Cost reduction Increased focus on core competencies Transition to new technologies Good contract and lawyer

Raleys Prefer to acquire talented, retail-oriented staff Augments IT projects with consultants, contractors Outsource professional services such as training and data entry

Raleys Main drawback of outsourcing is failure of outsourcing company to understand Raley’s business goals objectives and objectives

Points to Remember IT Organization IT Productivity IT Benefits Data Center Economics

Discussion Questions What will happen in your organization if the IT is outage? Does your organization measure its IT –Productivity? –Benefits?

Assignment Review chapters 8-13 & technology 3 Read chapter 14 Group assignment Research paper