1. CHAPTER 8 PLANNING FOR IT SYSTEMS Knowing Where You‘re Going

2. WHY IT SYSTEMS PLANNING? IT SYSTEMS PLANNING... l provides a systematic process for finding new IT systems. l generates a comprehensive list of new IT systems to develop that support the business strategy. l begins the systems development life cycle (see Chapter 9). Introduction8-2

3. YOUR FOCUS IN THIS CHAPTER l Planning for IT Systems and the IT Systems Plan l Aligning IT Systems with Organizational Goals and Strategies l Identifying Processes and Information Needs l Evaluating IT Systems l Planning for What You Can 抰 Live Without Introduction8-3

4. INFORMATION TECHNOLOGY (IT) SYSTEMS PLANNING IT Systems Planning8-4 is the process that uses the goals, strategies, objectives, processes, and information requirements of your organization as a foundation for identifying and selecting which IT systems to develop and deciding when to develop them.

5. IT SYSTEMS PLANNING PRODUCES A PLAN 1.Aligning Organizational Goals and IT 2.Identifying Specific Processes 3.Identifying Specific Information 4.Evaluating IT Systems 5.Planning for What You Can 抰 Live Without IT Systems Planning8-5 The 5 step IT systems planning process includes: The result is the INFORMATION TECHNOLOGY (IT) SYSTEMS PLAN that documents the results of the IT systems planning process.

6. CIOs LEAD IT IN ORGANIZATIONS IT Systems Planning8-6 The CHIEF INFORMATION OFFICER (CIO) is the strategic level IT manager who directs all IT systems and personnel while communicating directly with the highest levels of the organization.

7. ALIGNING ORGANIZATIONAL GOALS AND IT l IT Fusion l Competitive Forces Model l Competitive Intelligence Aligning IT & Business8-7 Three methods support aligning the organizational goals with IT. They include:

8. INFORMATION TECHNOLOGY FUSION (IT FUSION) OCCURS... Aligning IT & Business8-8 when the information technology within your organization is indistinguishable from the business processes and the people who exploit the information technology. So... if you don 抰 even know you 抮 e using IT, your organization has achieved IT fusion.

9. THE COMPETITIVE FORCES MODEL... 1.Customer force 2.Substitute force 3.Supplier force 4.New competition force 5.Current competition force Aligning IT & Business8-9 is a tool to formulate strategy by examining the environment in which your organization competes (See Figure 8.4, page 309). Five forces create the competitive environment:

10. Three Basic Strategies l Low-Cost Producer l Differentiation l Focus Determine the strength of each force and then look for opportunities to effect beneficial change. The opportunities for changing competitive forces with IT form the basis of a defensive competitive strategy.

11. WHY COMPETITIVE INTELLIGENCE? l Helps you anticipate market changes l Helps you anticipate competitive actions l Alerts you to new or potential competitors l Allows you to learn from other 抯 successes and failures l Allows you to learn about regulatory changes l Allows you to compare your processes to others. Aligning IT & Business8-10

12. THE COMPETITIVE INTELLIGENCE PROCESS 1.PLANNING –COMPETITIVE SCANNING - continuous competitive intelligence 2.GATHERING –PRIMARY INTELLIGENCE - gathering intelligence directly from the source –SECONDARY INTELLIGENCE - gathering intelligence indirectly 3.ANALYSIS by knowledge workers 4.INTEGRATION or using results to support your goals Aligning IT & Business8-11

13. COMPETITIVE INTELLIGENCE AND YOU l Helps in planning the purpose, scope, and timing l Assists in gathering electronic intelligence l Uses your expertise to analyze the intelligence –Finance - How do competitors make money? –Marketing - Can the market support another competitor? –Manufacturing - What quality standards do your competitors use? Aligning IT & Business8-12

14. The results of three methods is a clear view of how IT can support the goals and strategy of the organization. With this view, you can begin to plan specifics about IT systems.

15. IDENTIFY SPECIFIC PROCESSES THAT REQUIRE IT SUPPORT Identifying Processes8-13 Using the value chain method, business processes requiring IT support are identified, and the result is a list of IT systems to develop.

16. THE VALUE CHAIN METHOD l Primary value processes l Support value processes Identifying Processes8-14 views the organization as a chain - or series - of processes, each of which adds value to the product or service for the customer. Value chain processes fall into 2 categories:

17. Processes Can Add and Reduce Value l Identifying Processes that Add Value (See Figure 8.7, page 315) –Find those processes that add the most value –Support those processes with IT systems l Identifying Processes that Reduce Value (See Figure 8.8, page 316) –Find those processes that reduce value the most –Improve those processes with IT systems Identifying Processes8-15

18. IDENTIFYING SPECIFIC INFORMATION l Information Architecture l Critical Success Factors l Business Systems Planning Identifying Information8-16 Three methods support identifying your organization 抯 information needs. They include:

19. AN INFORMATION ARCHITECTURE... Identifying Information8-17 for an organization describes what information your organization needs and which people within your organization need that information. Remember: Information must support the customer 抯 moment of value.

20. An Information Architecture Must Identify... l The three dimensions of information needed (See Figure 8.10, page 319): –time –content –form l Who needs this information l Where you will maintain the information Identifying Information8-18 And result in a list of IT systems that will provide this information to the people who need it.

21. CRITICAL SUCCESS FACTOR Examples: l Engineering start-up firm - creating designs that meet standards l Bank - providing low transaction costs l Ice cream manufacturer - providing fresh product on store shelves l Discount retail chain - keeping shelves fully stocked l Shipping firm - delivering packages on time Identifying Information8-19 a factor critical to organizational success.

22. BUSINESS SYSTEMS PLANNING (BSP) l Identifies groups of related information called information classes. l Relates those classes to business processes. l Documents the processes that create and use information. Identifying Information8-20 identifies information requirements by documenting the relationships between business processes and information classes.

23. CREATING A BSP MATRIX The 3 steps to creating a BSP matrix are: 1.Senior management defines the business processes. 2.Process experts define the information classes needed to support each process. 3.Process experts relate the information to the processes using the create and use criteria. Identifying Information8-21 See Figure 8.11 (page 323) for an example BSP matrix.

24. EVALUATING IT SYSTEMS l Cost-Benefit Analysis l Risk Analysis l Capital Investment Analysis Evaluating IT Systems8-22 Three analysis methods support evaluating potential IT systems identified to this point. They include:

25. COST-BENEFIT ANALYSIS 1.Gathering proposed systems costs. 2.Gathering proposed systems benefits. 3.Comparing costs and benefits. Evaluating IT Systems8-23 is the process of evaluating IT systems for development by comparing systems costs with systems benefits. The analysis involves 3 steps. They are:

26. PROPOSED SYSTEMS COSTS l Costs estimates for systems development. l Costs estimates for systems operation and maintenance. l Costs estimates for systems adoption at different times in the future. l Costs for the organizational changes required. Evaluating IT Systems8-24 The proposed systems costs are calculated from several sources. Systems costs should include:

27. l Be conservative and estimate costs on the high side.

28. PROPOSED SYSTEMS BENEFITS l TANGIBLE BENEFITS are systems benefits that can be monetarily quantified. l INTANGIBLE BENEFITS are systems benefits that cannot be monetarily quantified. Evaluating IT Systems8-25 The proposed systems?benefits fall into two categories - tangible and intangible. It’s best to make every effort to quantify all benefits for a proposed system.

29. COMPARING COSTS AND BENEFITS l High costs during systems development. l Benefits at zero during systems development. l Costs drop to a maintenance level after development. l Benefits rise after system implementation. Evaluating IT Systems8-26 Systems costs and benefits vary over time. Look over Figure 8.12 (page 325) for the following characteristics:

30. RISK ANALYSIS l Unproven technology l A changing market or economy l Long selection and development time l Significant organizational change l Poor or too many assumptions Evaluating IT Systems8-27 INFORMATION TECHNOLOGY SYSTEMS RISK is the possibility that a system will not achieve the predicted benefits. Some sources of IT risk include:

31. A RISK ANALYSIS FRAMEWORK l High risk, low benefits - reject the system. l High risk, high benefits - limit the cost invested l Low risk, low benefits - use a cost-benefit analysis l Low risk, high benefits –For very high costs, use a cost-benefit analysis –Otherwise, develop Evaluating IT Systems8-28 Comparing system risk with system benefits suggests the following selection criteria (See Figure 8.13, page 326):

32. CAPITAL INVESTMENT ANALYSIS l Payback method l Cost-benefit ratio l Return on investment (ROI) l Net present value (NPV) l Internal rate of return (IRR) Evaluating IT Systems8-29 calculates a quantitative measure of IT systems value. Some investment analysis models in use include (See Table 8.4, page 327):

33. CONTINGENCY PLANNING: Planning for What You Can 抰 Live Without Contingency Planning8-30 Ninety percent of businesses whose computers are down for more than 5 working days will be out of business within a year!

34. Potential Opportunities for Disaster Include... l Weather-related disasters –Floods –Lightning strikes –Hurricanes –Tornadoes l Earthquake disasters l Loss of system and information access l Technology failure Contingency Planning8-31

35. CONTINGENCY PLANNING 1.Discovering what 抯 really important. 2.Asking how much does it cost to have information unavailable. 3.Balancing the cost of unavailability with the cost of recover. Contingency Planning8-32 is the process of examining the possibilities of losing an IT system and formulating procedures to minimize the damage. The three steps in contingency planning are:

36. DISCOVERING WHAT 扴 REALLY IMPORTANT l Identify critical functions and processes. l Identify the supporting IT systems. l Gather estimates of losses associated with the unavailability of these IT systems and their information. Contingency Planning8-33

37. HOW MUCH DOES IT COST TO HAVE INFORMATION UNAVAILABLE? l Low losses early l Losses jump as business is lost l Losses level out again at a high level Contingency Planning8-34 An INFORMATION UNAVAILABILITY COST CURVE is a depiction of the costs to the organization of the unavailability of information (See Figure 8.14, page 330). Information unavailability cost curve characteristics:

38. THE COST OF DISASTER RECOVERY l High costs early l Costs drop rapidly l Costs level out low Contingency Planning8-35 A DISASTER RECOVERY COST CURVE is a depiction of the organization 抯 disaster recovery costs based on how quickly you wish to recover (See Figure 8.15, page 331). Disaster recovery cost curve characteristics:

39. BALANCE THE COST OF UNAVAILABILITY WITH THE COST OF RECOVERY 1.Superimpose the cost curves upon each other. 2.Find the point where they cross. 3.This point is the best disaster recovery plan in terms of cost and time. Contingency Planning8-36

40. THE INFORMATION TECHNOLOGY SYSTEMS PLAN l The documented results of IT systems planning. l This document does not signal an end to planning. l IT systems planning is an ongoing process, not a project. IT Systems Plan8-37 Look over Figure 8.17 (page 331) for an IT system plan outline.

41. TO SUMMARIZE l IT systems planning identifies and selects IT systems. l The steps in IT systems planning are: –Aligning organizational goals and IT –Identifying specific processes –Identifying specific information –Evaluating IT systems –Planning for what you can 抰 live without l The result of these steps is an IT systems plan. 8-38

42. TO SUMMARIZE l Each IT system planning step is supported by one or more methods. l Aligning organizational goals and IT is supported by: –IT fusion –Competitive forces model –Competitive intelligence l Identifying specific processes is supported by: –Value chain 8-39

43. TO SUMMARIZE l Identifying specific information is supported by: –Information architecture –Critical success factors –Business systems planning l Evaluating IT systems is supported by: –Cost-benefit analysis –Risk analysis –Capital investment analysis l Planning for what you can 抰 live without is supported by: –Information unavailability cost curve –Disaster recovery cost curve 8-40