UNDERSTANDING THE BUSINESS VALUE OF SYSTEMS AND MANAGING CHANGE

1. 15 UNDERSTANDING THE BUSINESS VALUE OF SYSTEMS AND MANAGING CHANGE

2. LEARNING OBJECTIVES • EVALUATE MODELS DETERMINING BUSINESS VALUE OF INFORMATION SYSTEMS • ANALYZE PRINCIPAL CAUSES OF INFORMATION SYSTEM FAILURE • ANALYZE REQUIREMENTS FOR BUILDING SUCCESSFUL SYSTEMS • SELECT STRATEGIES TO MANAGE SYSTEM IMPLEMENTATION

3. Challenges • Determining benefits of information systems • Not Tangible • Dealing with the complexity of large scale implementations • Large organization, wide area • Many staff members, users requirements • Technology choices, making a decision • Political impact, manager bias

4. UNDERSTANDING BUSINESS VALUE OF INFO SYSTEMS • Does a particular IS investment produce sufficient returns to justify its costs? • Three approaches: • CAPITAL BUDGETING MODELS • PORTFOLIO ANALYSIS • REAL OPTIONS PRICING MODEL (Skip this one)

5. Capitol Budget • Several methods are can be used to justify IS technology within Capital Budget. • Process for analyzing and selecting various proposals for capital expenditures. • Cash flow in and out of the firm is the basis. • PAYBACK METHOD: How long will it take to pay back the investment? • Org inv / annual net cash inflow = # years

6. Capitol Budget • RETURN ON INVESTMENT: Does return during useful life of an item exceed the cost to borrow money? • (Total ben – cost – depriciation) / useful life = net Ben • Net ben / total initial invest = ROI • COST-BENEFIT RATIO: Does the ratio of benefit versus cost exceed 1? • Total ben / total cost = cost-ben ratio

7. Capitol Budget • PROFITABILITY INDEX: What is the ratio of present value of cash inflow to initial investment? • NET PRESENT VALUE: Accounting for cost, earnings & time value of money what is the investment worth? • INTERNAL RATE OF RETURN: Accounting for the time value of money, what is the return rate of an investment?

8. Costs • COSTS: • HARDWARE • SOFTWARE • SERVICES • PERSONNEL

9. Benefits • TANGIBLE BENEFIT: • INCREASED PRODUCTIVITY • LOW OPERATING COSTS • REDUCED WORK FORCE • LOWER COMPUTER EXPENSES • LOWER VENDOR COSTS • LOWER CLERICAL/PROFESSIONAL COSTS • REDUCED GROWTH OF EXPENSES • REDUCED FACILITY COSTS

10. More Benifits • INTANGIBLE BENEFIT: • IMPROVED ASSET USE; RESOURCE CONTROL; PLANNING • INCREASED FLEXIBILITY • MORE TIMELY INFORMATION • INCREASED LEARNING • ATTAIN LEGAL REQUIREMENTS • ENHANCED EMPLOYEE GOODWILL, JOB SATISFACTION, DECISION MAKING, OPERATIONS • HIGHER CLIENT SATISFACTION • BETTER CORPORATE IMAGE

11. CAPITAL BUDGETING MODELS • LIMITATIONS: • Assume all relevant alternatives have been examined; cost & benefits can be expressed as $$ • Ignores intangible benefits • Cost are usually up front and tangible • Benefits are usually back loaded and intangible.

12. PORTFOLIO ANALYSIS: • ANALYSIS OF POTENTIAL APPLICATIONS TO DETERMINE RISKS & BENEFITS • DETERMINE DESIRABLE FEATURES, ACCEPTABLE RISKS OF REQUIRED SYSTEM • GENERATE PORTFOLIO OF CHARACTERISTICS, RISKS FOR EACH ALTERNATIVE • Usually a SCORING MODEL is used. • Sometime is it more just a matter of group consensus on priorities • benefit versus risk

13. Risk Matrix Scoring • Project Risk Low High Cautiously Examine Identify and Develop High Potential Benifit Avoid Routine Projects Low

14. Typical Scoring Model • IDENTIFY DESIRABLE FEATURES • PROVIDE WEIGHTS FOR EACH • Totals TO 1.00 • LOOK AT EACH ALTERNATIVE: • WHICH FEATURES ARE PRESENT? • TO WHAT EXTENT (as an amount)? • SCORE THE ALTERNATIVE 1-5highest • RANK-ORDER THE ALTERNATIVES • SELECT HIGHEST RANKED OPTION

15. Change Management • Causes of implementation failure: • DESIGN • DATA • COST • OPERATIONS

16. Change Agent • DURING IMPLEMENTATION, INDIVIDUAL ACTS AS CATALYST DURING CHANGE PROCESS TO ENSURE SUCCESS

17. FACTORS IN IMPLEMENTATION OUTCOMECAUSES OF SUCCESS OR FAILURE: • USER INVOLVEMENT & INFLUENCE • MANAGEMENT SUPPORT • LEVEL OF COMPLEXITY / RISK • MANAGEMENT OF IMPLEMENTATION PROCESS

18. User Designer Gap • DIFFERENCES IN BACKGROUNDS, INTERESTS, PRIORITIES IMPEDE COMMUNICATION AND PROBLEM SOLVING AMONG END USERS AND INFORMATION SYSTEMS SPECIALISTS

19. User Concerns • WILL SYSTEM DELIVER INFORMATION I NEED? HOW QUICKLY CAN I ACCESS DATA? HOW EASILY CAN I RECEIVE DATA? HOW MUCH CLERICAL SUPPORT WILL I NEED FOR DATA ENTRY? HOW WILL SYSTEM OPERATION FIT INTO MY DAILY BUSINESS SCHEDULE?

20. Designer Concerns • HOW MUCH DISK SPACE WILL MASTER FILE CONSUME? HOW MANY LINES OF PROGRAM CODE WILL THIS FUNCTION TAKE? HOW CAN WE REDUCE CPU TIME? WHAT IS THE MOST EFFICIENT WAY OF STORING THIS DATA? WHAT DATABASE MANAGEMENT SYSTEM SHOULD WE USE?

21. Level of Complexity and Risk • PROJECT SIZE • PROJECT STRUCTURE • EXPERTISE WITH TECHNOLOGY

22. STRUCTURE TECHNOLOGY LEVEL SIZE RISK HIGH LOW LARGE LOW HIGH LOW SMALL VERY LOW HIGH HIGH LARGE MEDIUM HIGH HIGH SMALL MEDIUM-LOW LOW LOW LARGE LOW LOW LOW SMALL VERY LOW LOW HIGH LARGE VERY HIGH LOW HIGH SMALL HIGH Controlling Risk

23. CONSEQUENCES OF POOR PROJECT MANAGEMENT • COST OVERRUNS • TIME SLIPPAGE • TECHNICAL SHORTFALLS • FAILURE TO OBTAIN BENEFITS

24. CAUSES OF POOR PROJECT MANAGEMENT • IGNORANCE & OPTIMISM • MYTHICAL MAN-MONTH: Many tasks sequentially linked, require training. Adding more chefs will not improve the stew. • FALLING BEHIND: Bad news travels slowly upward

25. Challenges • ENTERPRISE SYSTEMS: High risk of failure, replacing legacy systems, myriad interconnections • BUSINESS PROCESS REENGINEERING: 70% failure rate, deeply rooted in old processes, employees often unprepared

26. Change Management Challenges • MERGERS & ACQUISITIONS: • may produce a decline in shareholder value(70% do) • difficult to integrate company systems • organizational change, worker morale

27. Implementing Change • CONTROL RISK FACTORS: Gear tools, methodologies to level of risk Technical complexity managed with: • INTERNAL INTEGRATION TOOLS • Technical Project Manager Project management managed with: • FORMAL PLANNING TOOLS • FORMAL CONTROL TOOLS

28. Formal Planning Tools • PROGRAM EVALUATION & REVIEW TECHNIQUE: Diagram of project activities, sequential and concurrent, shows interactions of activities • GANTT CHART: Shows activities as bars along a time line, with beginning, end of each task THESE PROVIDE SCHEDULES

29. Tools • BUDGET: Time, money, resources • MONITOR PROGRESS: Completion of tasks, fulfillment of goals • CONTROL RISK FACTORS: Cost/benefits

30. External Integration • LINK ALL USERS THROUGHOUT ORGANIZATION • USE END USERS AS TEAM MEMBERS • SHARE INFORMATION & PROGRESS • INCLUDE TRAINING • AVOID COUNTERIMPLEMENTATION

31. Organizational Issues • ORGANIZATIONAL IMPACT ANALYSIS: How will system impact structure, attitudes, decision-making, operations SOCIOTECHNICAL DESIGN: Explore group structures, task allocation, job design for human factor

32. The End • Questions