Introduction to IT investment decision-making Pertemuan 1-2 Matakuliah: A Strategi Investasi IT Tahun: 2009

Bina Nusantara University 3 Introduction Positive relationship between spending on IT and its contribution to profitability Connection between capital investment in IT and productivity or performance of a company Exploring methodologies that will give optimal solution to managers facing IT investment decision

Types of IT investment decision-making problems What are most appropriate quantitative methods and techniques for IT evaluation? What quantitative and qualitative measures can be used in the assessment of IT investment? How can we provide objectively IT decision when we use highly complex criteria? How do we choose the best alternative from IT projects? How can we justify IT decisions? Bina Nusantara University 4

What are IT investment? Investing in equipment, application, service, and basic technology Expenses associated with acquiring computer, communication, software, network and personnel Investment decision of allocating types of resources (human, monetary, physical) to an MIS MIS : collection of four primary components ; personnel, application software, system software, and hardware  see figure 2 Bina Nusantara University 5

IT Methodologies Analytical hierarchy Balance scorecard Critical success factors Decision theory Accounting rate of return Delphi method Satisfaction and priority surveys Game theory Payback period Information economics  See table 2 Bina Nusantara University 6

Limitations of methodologies Limit what kinds of factors they can consider Not being able to include the right combination of decisions factors or criteria Do not always keep to a predicted time table Higher risks than other capital investments Bina Nusantara University 7

Classes of IT risk Physical risks : vulnerability of computer hardware, software, data theft, sabotage, piracy, deletion, security Managerial risk : failure to achieve benefit or cost reduction, desired time frame, end-user resistance, inability of system, incompatibility issues Bina Nusantara University 8

Why study IT investment? Advancement in technology can give competitive advantage of improvement in communicating to customer, over the competitor, or within partnering companies. Poor IT investment can increase capital cost, interest cost, delay customer order, disrupt communication, and decrease employee morale. Bina Nusantara University 9

Organizational planning in IT investment Strategic planning : senior managers to be involved in developing specific systems to implement corporation strategy Tactical planning : middle managers will implement the goals and objectives defined at prior stage Operational planning : more detailed, day to day work effort is planned and scheduled.  See figure 3 Bina Nusantara University 10

MIS planning of IT systems 1.External analysis of competition and threats 2.Internal analysis of firm’s strengths and weaknesses 3.Overall corporate strategic planning 4.MIS functional area strategic planning 5.Process and systems engineering 6.Configuration and functionality analysis 7.IT system evaluation and justification 8.IT system implementation 9.Post implementation analysis Bina Nusantara University 11

System implementation strategies Direct conversion Parallel conversion Phased conversion Pilot conversion  See table 3 Bina Nusantara University 12