1. SESSION 13 UNDERSTANDING THE BUSINESS VALUE OF SYSTEMS
AND MANAGING CHANGE

2. Traditional Capital Budgeting Models
Process of analyzing and selecting various proposals for capital expenditures
The payback method
ROI
Cost benefit ratio
NPV
Profitability Index
IRR

3. Traditional Capital Budgeting Models Limitations of Financial Models
Do not express the risks and uncertainty of own cost and benefits estimates
Costs and benefits do not occur in the same time frame for IS
Technology changes causing estimates to vary
Intangible benefits are difficult to quantify
IS life expectancy is shorter than manufacturing systems

4. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Heartland Stores
General merchandise retail chain upgrading supply chain management system
Reduce inventory costs: Items stocked in inventory
Reduce labor costs: Inventory and tracking personnel
Reduce telecommunication costs: Less time on phone tracking inventory and shipments
Reduce transportation costs: Consolidating shipments, more efficient shipping schedules

5. Understanding the Business Value of Information Systems
Costs and benefits of the new supply chain management system
Figure 14-1

6. Understanding the Business Value of Information Systems
Financial models
Figure 14-2

7. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Payback Method
Time required to pay back initial investment of project
Original investment =
Number of years to pay back
Annual net cash inflow

8. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Accounting Rate of Return on Investment (ROI)
Desired rate of return must equal or exceed cost of capital
(Total benefits – Total cost – Depreciation) =
Net benefit
Useful life
Net benefit =
ROI
Total initial investment

9. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Net Present Value
Compare investment with future savings and earnings
Present value of expected cash flows -
Initial investment cost =
Net present value

10. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Cost-Benefit Ratio
Ratio of benefits to cost
Total benefits =
Cost-benefit ratio
Total costs

11. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Profitability Index
Allows ranking of different possible investments
Present value of cash inflows =
Profitability index
Investment

12. Understanding the Business Value of Information Systems
Case Example: Capital Budgeting for a New Supply Chain Management System
Internal Rate of Return (IRR)
Rate of return, or profit, that an investment is expected to earn
Discount (interest) rate that will equate the present value of the projects future cash flows to the initial investment cost

13. Strategic Considerations
Portfolio Analysis
Analysis of portfolio of potential applications within a firm
Determines risks and benefits
Selects among alternatives for information systems

14. Strategic Considerations
A System Portfolio
Figure 14-3

15. Strategic Considerations
Scoring Models
Method for deciding among alternative systems based on a system of ratings
Real Options Pricing Models
Models for evaluating information technology investments with uncertain returns

16. Strategic Considerations
Knowledge Value–Added Approach
Focuses on knowledge input into a business process
Determines costs and benefits of changes in business processes from new information systems

17. Information Technology Investments and Productivity
Productivity :Measure of firm’s efficiency in converting inputs to outputs
Productivity paradox

18. IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Information System Problem Areas
System failure
Information system does not perform as expected, is not operational at a specified time
Poor design, inaccurate data, excessive expenditure, breakdown in operations

19. Information System Problem Areas
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Information System Problem Areas
Figure 14-4

20. IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Change Management and the Concept of Implementation
Implementation
Organizational activities working towards adoption, management, and routinization of innovation

21. Role of users in implementation process
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Causes of Implementation Success and Failure
Role of users in implementation process
Degree of management support for implementation effort
Level of complexity and risk of implementation project
Quality of management of implementation process

22. Factors in Information System Success or Failure
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Factors in Information System Success or Failure
Figure 14-5

23. User–designer communications gap
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
User Involvement and Influence
User–designer communications gap
Different backgrounds, interests, and priorities
Impedes communication and problem solving among end users and information systems specialists

24. IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Management Support and Commitment
Project requires backing and commitment of management at various levels
Perceived positively by both users and technical information services staff

25. Project size: Larger project has greater risk
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Level of Complexity and Risk
Project size: Larger project has greater risk
Project structure: Clear and straightforward requirements help define outputs and processes
Experience with technology: Project risk rises if project team and information system staff lack required technical expertise

26. Improper management leads to:
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Management of the Implementation Process
Improper management leads to:
Cost overruns
Unexpected time slippage
Technical shortfalls
Failure to obtain anticipated benefits

27. Consequences of Poor Project Management
IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM
SUCCESS AND FAILURE
Consequences of Poor Project Management
Figure 14-6

28. Controlling Risk Factors
Managing Technical Complexity: Usage of internal integration tools to ensure operation of implementation team
Formal Planning and Control Tools: Structures and sequences tasks, monitors progress towards fulfillment of goals

29. Controlling Risk Factors
Increasing User Involvement and Overcoming User Resistance: Linking work of implementation team to that of users at all organizational levels