Information Systems and Professional Issues 2007 (BMAN 30801) – Session 2

1. Information Systems and Professional Issues 2007(BMAN 30801) – Session 2 Monday 8th October 1600 - 1750 hours Roscoe Building Lecture Theatre B Keith Girling – Visiting Professor Module Text: “Professional Issues in Information Technology” – Frank Bott 2005

2. Objectives For Today 8th October? • First of TWO sessions on the BUSINESS context for IT • Challenging but Fundamental • The “Eastenders” syndrome • Text Chapters 5, 6, 7, 8 • Consider Business Start-Up; the role of CAPITAL • Consider the concept of INVESTMENT • Next session about ACCOUNTING

3. Remind ourselves of our “mind-map” Remind ourselves of our “mind-map” Bodies Structure and Management HR Issues Nature PROFESSIONS (4) ORGANISATIONS (2) Professional Issues in Information Technology LAW & GOV’T (3) BUSINESS (1) Capital Data Protection Anti-discrimination Management Accounting S/W Contracts IPR Financial Accounting Investment Internet Misuse

4. Why do we need capital? • What are the different types of “commercial” venture? • “Great Aunt Maud” • Best ideas and intentions are purely academic unless vehicle for delivery • Set-Up Costs • Leads and Lags

5. The Business Plan • “To manage is to forecast and plan, to organize, to command and to control” (Henri Fayol 1842-1925) • Convince Others/Control • Consists of: • Objectives, Feasibility • Markets • Control Systems esp. Financials

6. Sources of Finance To Begin With: • Money You’ve got • Savings • Inheritance • Grants • Money You Can Borrow • Loans • Equity Capital • Ongoing: • Retained Profits • New Finance

7. “The Dragon’s Den” – Gearing? • Benefits v Risks • Control

8. Investment Appraisal • Not to turn us into Accountants! • The Time Value of Money • Discounted Cash Flow • Applying DCF to propositions • Limitations of DCF

9. Investment Appraisal –2. The Time Value of Money • What is money in the future worth now? • Need to assume an “interest” rate • Use tables and spreadsheets because of “compound” calculations • Make assumptions about expenditures and income and when these occur “ the discount factor for a discount rate of 8 per cent over a period of four years is 0.7350. This means that, if the discount rate is 8 per cent, the present value of a sum of £1,000 payable in four years time is £1000 x 0.7350 - £735.”

10. Investment Appraisal -3. Discounted Cash Flow Example Page 87 – a computer maintenance company is considering whether to invest in a second van or continuing to rent a van at peak times - ASSUMPTIONS: • New Van Costs £10,000 – Annual Insurance £500, Road Tax £150 • Maintenance £200 first two years, £300 year 3, £400 year 4, £500 year 5 • At end year 5, van is sold for £2,000 (year 5 value) • Interest Rate company pays on borrowings is 10% • Van Hire costs are £30 per day and hires for 100 days per year • All cost subject to 5% inflation over the period Total NPV over 4 years of buying new van = £13,030 Total NPV over 4 years of renting = £15,980 BUT companies (usually the Finance Director) will factor in many more variables for example costs of money from different sources, and opportunity costs

11. Investment Appraisal -4. Applying DCF to Propositions • Example Page 90 – Developing a Software Product • Introduces other important concepts • Cumulative Present Value • Pay-back Period • Internal Rate of Return (IRR)

12. Investment Appraisal -5. Limitations of DCF • Let’s do a “risk analysis” on a software development project?

13. Summary • Remind ourselves of objectives for today • First of TWO sessions on the BUSINESS context for IT • Challenging but Fundamental • Text Chapters 5, 6, 7, 8 • Consider Business Start-Up; the role of CAPITAL • Consider the concept of INVESTMENT • Next session about ACCOUNTING • Actions? • Get access to the Book! • Digest Chapters 5, 6, 7, 8 • Next session about ACCOUNTING • THEN – we’ll get onto some of the more compelling stuff!