1. IT Economics Conflict between
Short term corporate horizons for planning and seeing results
Long term IT horizons

2. IT Economics Value may be realized long term
initial negative NPV
Value of applications that are bundled with the platform

3. IT Economics Value of potential future applications
Proprietary advantages of the platform
Justification in terms of survival

4. IT Economics IT was viewed as budgeted expense
standard measures of efficiency (ROI)
Replaced by measures of individual productivity
does the individual make a better decision?
measures not under direct control of IT dept
hard to predict benefits

5. IT Economics Control measures Actual versus budgeted costs
Achievements versus predictions
Returns against investments

6. Accounting for IT Unallocated cost center Services are free
User interaction with IS department encouraged
No charge-out system
Encourages innovation
Problems with irresponsible requests, insulation from competitive pressures

7. Accounting for IT Allocated cost center (chargeback)
What charges are used as a basis for comparison?
Discourages innovation
Charges are complex and unintelligible to the user
Charges may vary depending on time over which incurred
Passing along IT inefficiencies to the user .

8. Accounting for IT
Characteristics of effective charge-out systems for operations
Simplicity
agreed-upon standard cost per unit of output
Perceived as fair and reasonable
produces replicable, reliable results
Distinguish between efficiency of IT operations and users’ use of the system

9. Accounting for IT Profit center Exposes IT to competitive pressures
Develops marketing function
Excess capacity can be sold to outsiders

10. Budgeting Resource allocation at the micro level
Measures short-term achievements
Serves as warning if cost situation deteriorates

11. Budgeting Coverage planned service levels and costs
amount of internal support to be implemented
amount of external services to be acquired
controls on purchases by IT for use by entire firm

12. IT Audit
Ensuring standards are met for IT operations and systems development
Reviewing operating units to reduce errors
Reviewing systems development activities

13. IT Audit Challenges Trained personnel
Audit procedures lag behind technical change
Management support

14. New Measures of Value for IT
Increased market share
Cycle time reduction
Operating process quality improvement
Activity based cost improvement

15. New Measures of Value for IT
Improved operating margins relative to competition
Stakeholder satisfaction and returns
Improved decision quality
Improved workgroup productivity