Economics in IS/IT decision-making

1. Economics in IS/IT decision-making Professor：Dr. Celeste Ng Presenters： Group 5

2. Weighted ScoringMethod Professor：Dr. Celeste Ng Presenter：961652 黃珮甄

3. What is the Weighted Scoring Method? • Weighted scoring methods plainly identify decision factors, and each alternative is compared to the factors. The decision models address many factors. A numerical value is assigned to each alternative for each factor. Various factors are weighted differently. The weighted numerical values are added, and the alternative with the highest score is the best overall alternative.

4. Weighted Scoring Method Steps • Step 1. Define the decision factors. • Step 2. Assign importance levels, or weights, to each decision factor. • Step 3. Mapping scales for decision factor into scores. • Step 4. Score each decision factor for each alternative, multiply the score by its weight, and sum the weighted scores. • The higher the weighted score, the better.

5. Example︰ A firm decides to buy an inventory management system. There are four different suppliers can be considered.

6. Step 1. Define the decision factors The following factors could be considered︰ • Cost (price、maintenance fee、training cost…) • Supplier (vendor reputation、vendor stability…) • Functionality (user interface、modifiability…) • User Services (training service、warranty…)

7. Step 2. Assign importance levels, or weights, to each decision factor • Weight each decision factor based on its importance in the decision-making process. Subject matter experts need to participate in this step.

8. Step 3. Mapping scales for decision factors into scores - 1 • A scale of some types allows the decision maker to rate the factors ofeach option. Scales can be created in a variety of forms. Evaluation scale for cost Evaluation scale for supplier

9. Step 3. Mapping scales for decision factors into scores - 2 Evaluation scale for functionality Evaluation scale for user services

10. Step 4. Score each decision factor for each alternative, multiply the score by its weight, and sum the weighted scores The results show that supplier A has the highest total weighted score , and therefore would be the best choice.

11. Advantages of weighted scoring methods • Address different factors, such as the IT system’s functionality and the cost of the IT system. • Different types of scales can be used for the various factors. • Can be used by individuals or groups. • It is easy to calculate.

12. Disadvantages of weighted scoring methods • It is subjective. • Time consuming — decision factors and evaluation scales must be developed, and each alternative must be compared against each evaluation scale • Weighted scoring methodsnot plainly account for uncertainty

13. References • http://www.uscg.mil/hq/cg5/cg5211/docs/RBDM_Files/PDF/RBDM_Guidelines/Volume%202/Volume%202-Chapter%205.pdf (RISK-BASED DECISION-MAKING GUIDELINES) • http://www.springerlink.com/content/t8pp09vhjdncg913/ (The Limitations of Current Decision-Making Techniques in the Procurement of COTS Software Components) • http://www.slideshare.net/CardinaleMazda/weighted-score-and-topsis (Weighted Score) • http://thesis.lib.ncu.edu.tw/ETD-db/ETD-search-c/view_etd?URN=92421041#anchor

14. Q&A

15. Balance Scorecard(BSC) Professor: Dr. Celeste Ng Presenter: 961654 毛韻雯

16. What is Balance Scorecard? • Balance Scorecard(BSC) is a management system that maps an organization's strategic objectives into performance metrics in four perspectives: • The Financial Perspective • The Customer Perspective • The Internal Process Perspective • The Learning & Growth Perspective

17. Source: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

18. Financial 1.The Financial Perspective Ex. • Operation Growth and Mixed • Cost Declined, Productivity Increased • Assets Used and Investment Strategy

19. Customer 2.The Customer Perspective Ex. • Market Share Ratio • Acquirement of Customers • Continuation of Customers • Satisfaction of Customers • Profitability of Customers

20. Internal Process 3.The Internal Process Perspective Ex. • Innovation Process • Operation Process • Customer Service Process

21. Learning & Growth 4.The Learning & Growth Perspective Ex. • The ability of Employee • The ability of Information systems • Incentive, Authority and Fitness

22. Metrics • Within each of perspective, usually define the following: • Objectives - what the strategy is to achieve in each perspective. • Measures - how progress for that particular objective will be measured. • Targets - the target value sought for each measure. • Initiatives - what will be done to facilitate the reaching of the target.

23. Source: http://www.senalosa.com/services/consulting

24. How to use BSC method? • Step 1: Confirm the mission • Step 2: Define Objectives • Step 3: Construct the Strategy Map • Step 4: Initiatives • Step 5: Apply Weighted Scoring Method to BSC • Step 6: Make a decision

25. Step 1 & Step 2 Step 1: Confirm the mission - Confirm which perspective company focuses on. Step 2: Define Objectives -Objectives should be defined to support each perspectives.

26. Step 3 & Step 4 Step 3: Construct the Strategy Map - Illustrates how the organization plan to achieve its mission and vision. Step 4: Initiatives - Initiations should be listed to understand how to reach the goals.

27. Step 5 & Step 6 Step 5: Apply Weighted Scoring Method to BSC - According to the four perdpectives, assign weights, scores of value and get the sum of weighted scores. Step 6: Make a decision - Compare, select and implement.

28. Example • A manager in XX Company is making a purchasing decision, which project should be accepted? XX Company’s Mission: • To find, attract, and win new clients, nurture and retain those the company already has. • Meet all the customer’s needs.

29. Example -XX company Balanced Scorecard

30. Example - Apply Weighted Scoring Method • Because the sum of weighted scores 61>47.25,the project 1 is better.

31. Advantages • Quantitative each perspectives into measurable parameters. • To overcome the short-term behavior of the financial assessment. • It is Flexible, some methods(EX.Weighted Scoring Method ) can be applied to the BSC concept.

32. Disadvantages • Implementation of the balanced scorecard takes much time and effort. • Hard to get automation. • Should be updated frequantly. • Actually, performance measures are difficult to be confirmed.

33. References • Balanced Scorecard Institute (http://www.balancedscorecard.org/Home/tabid/36/Default.aspx) • http://www.netmba.com/accounting/mgmt/balanced-scorecard/ • Wiki(http://en.wikipedia.org/wiki) • http://www.mindtools.com/pages/article/newLDR_85.htm • http://wiki.mbalib.com/wiki/%E5%B9%B3%E8%A1%A1%E8%AE%A1%E5%88%86%E5%8D%A1

34. Q&A

35. Analytical Hierarchy Process (AHP) Professor: Dr.Celeste Ng Presenter: 961753 徐敏嘉

36. What is AHP?(1) • The AHP, originally developed by Saaty(1980),is a powerful tool for multi-criteria decision-making under uncertainty. • With AHP complex decision problems can be broken down into a set of manageable pair wise comparisons, aiding decision makers to arrive at the best alternative (Pearson,2001)

37. What is AHP?(2) • Components of hierarchy 1.Goal (the problem that you want to solve) 2.Criteria (the conditions that you are considering) 3.Alternatives (the solutions that you can choose)

38. What is AHP?(3) • Consistency Index (CI) • λmax =the maximum eigenvalue of the judgment matrix • n=the number of samples • Consistency Ratio (CR) = CI/RI • Random Index (RI) =a CI of randomly generated matrices (see table below) • CR should be less than 0.1 (If the CR value is greater than 0.10, then it is a good idea to study the problem further and re-evaluate the pairwise comparisons)

39. Steps of AHP • Step1 Build the hierarchy • Step2 Establish priorities • Step3 Calculate the ratings • Step4 Compare the alternatives

40. Step1-Build the hierarchy Purchasing a system Goal Purchasing a system 4 Criteria 1.Cost 2.Functionality 3.Supplier’s reputation 4.User’s services Supplier’s reputation User’s services Cost Functionality 3 Alternatives 1.System A 2.System B 3.System C System A System B System C

41. Step2-Establish priorities(1) The relative importance of two elements is rated using a scale with the values 1, 3, 5, 7, and 9 • Scale of relative importance (according to Satty(1980)) 2,4,6,8 intermediate values between the two adjacent judgments. (When compromise is needed.) Example- If x2 is very strongly more important than x1 ,then a12 should fill in “7” and a21 should fill in “1/7.”

42. Step2-Establish priorities(2) • Cost is absolutely more important(9) than Functionality. • Cost is weakly less important(1/3) than Supplier’s reputation. • Cost is weakly more important(3) than User’s services. • Functionality is very strongly less important(7) than Supplier’s reputation. • Functionality is weakly less important(1/3) than User’s services. • Supplier’s reputation is strongly more important(5) than User’s services.

43. (3) Step2-Establish priorities • Weights on each criteria

44. (1) Step3-Calculate the rating for Preferences on criteria Convert to decimal point & Calculate the sum for each column

45. (2) Step3-Calculate the rating for Preferences on criteria Each number divided by the sum from the column it belongs to & Calculating the average of each row (Table 1)

46. Step3-Calculate the rating for Cost Convert to decimal point &Calculate the sum for each column (Table 2) =3.02 n=3 CI=0.02/2=0.01 CR=0.01/0.58=0.02<0.1 Each number divided by the sum from the column it belongs to & Calculating the average of each row

47. Step3-Calculate the rating for Functionality Convert to decimal point &Calculate the sum for each column (Table 3) =3.05 n=3 CI=0.05/2=0.025 CR=0.025/0.58=0.04<0.1 Each number divided by the sum from the column it belongs to & Calculating the average of each row

48. Step3-Calculate the rating for Supplier’s reputation Convert to decimal point &Calculate the sum for each column (Table 4) Each number divided by the sum from the column it belongs to & Calculating the average of each row

49. Step3-Calculate the rating for User’s services Convert to decimal point &Calculate the sum for each column (Table 5) =3.03 n=3 CI=0.03/2=0.015 CR=0.015/0.58=0.026<0.1 Each number divided by the sum from the column it belongs to & Calculating the average of each row

50. Step4-Compare the alternatives From Table 2 From Table 3 From Table 4 From Table 5 From Table 1 Each column means the score that each system got from each criteria The weighted score of each criteria • The weighted score for system A0.06*0.3+0.73*0.05+0.67*0.54+0.11*0.11=0.4284 • The weighted score for system B 0.19*0.3+0.08*0.05+0.27*0.54+0.26*0.11=0.2354 • The weighted score for system C 0.75*0.3+0.19*0.05+0.07*0.54+0.63*0.11=0.3416