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Managing IS/IT Investments: Evaluation, Prioritization, and Benefit Management

This chapter discusses investment issues in IS/IT, including justification and evaluation based on benefits, setting priorities for applications, benefit management processes, risk assessment, and IT service charging.

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Managing IS/IT Investments: Evaluation, Prioritization, and Benefit Management

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  1. Chapter 10 Managing Information Systems and Technology Investments

  2. Agenda • Investment issues • Evaluating IS/IT investment • Setting priorities for applications • Benefit management • IT service charging

  3. Investment Issues • Justification & evaluation of IS/IT in terms of benefits • Determining the priority in terms of benefits • Realization of benefits • Risk assessment

  4. Evaluating IS/IT Investment • Types of IS • Types of benefits • Relationship of IS & benefits • IS & financial benefits

  5. Types of IS • Substitute for efficiency (do thing right) • Complementary for effectiveness (do right thing) • Innovative for competitive edge

  6. Types of Benefits • Cost/benefit analysis • Value linking: improvement in business performance not cost saving • Value acceleration: time dependency of costs and benefits in other dept. of system improvement • Value restructuring: productivity resulting from organizational change & change of job roles • Innovation evaluation: new business practice levered from IS/IT

  7. Relationship of IS & Benefits - I • High potential (innovative): cost/benefit, value linking, value acceleration, value restructuring, & innovation evaluation) • Strategic (innovative & complementary): cost/benefit, value linking, value acceleration, & value restructuring

  8. Relationship of IS & Benefits - II • Key operational (complementary & substitute): cost/benefit, value linking, & value acceleration • Support (substitute): cost/benefit, value linking, & value acceleration

  9. IS & Financial Benefits - I • High Potential: fund R&D exploring potential value & cost (risk money) • Strategic: enable achievement of business objectives via explicit critical success factors (low)

  10. IS & Financial Benefits - II • Key operational: disadvantage/risk if it is not done (critical failure factors) & quantified performance improvement (medium) • Support: net cost reduction through quantified saving (high)

  11. Setting Priorities for Applications • Assessment factors • Objectives (critical success factors) • Benefits (tangible & intangible) • Resources (financial, technology & human) • Risks (time, size, duration, technology, user expectation & availability)

  12. Benefit Management • Objectives: Organizing and managing business activities to realize the potential benefit • Process • Identify and structuring of benefits • Planning benefits realization (business improvement by stakeholders) • Executing the benefits realization plan • Evaluating and reviewing results • Potential for future benefits

  13. Risk Management • Types of IS failure • Success factors of IS • Success factors & IS • Types of risk

  14. Types of IS Failure • Business environment • Organizational • User • Data • Technical

  15. Success Factors of IS • Time • Quality or benefits • Cost

  16. Success Factors & Application • Strategic: time (h), quality (m), cost (l) • Key operational: time (m), quality (h), cost (m) • Support: time (l), quality (m), cost (h)

  17. Types of Risk • People: management, user, technical, & communication • Size: person-years • Project control: time, quality and cost • Complexity of system: business functions • Novelty: business change & technical solution • Stability of requirement

  18. IT Service Charging • Types of service charging • Service charging and IS

  19. Types of IT Service Charging • Service center • Cost center • Profit center • Hybrid center

  20. Service Center • Pros • Stimulate experimentation • Avoid conflict • Promote use of service • Cons • Uneconomic usage • No accountability • Excessive demand • No priority setting

  21. Cost Center • Pros • Justify request • Control on IS/IT • User aware of costs • Enable priority setting • Cons • Deter use of IT • Focus on cost not benefit • Unsatisfactory in practice

  22. Profit Center • Pros • IS/IT controls its costs • IS/IT becomes proactive • Encourage user decision making • Cons • User may go external • Create under-used IS/IT resources • IS/IT specialists in profitable work

  23. Hybrid Center • Pros • Allow different stages of IS/IT development • Accommodate innovation & new technology • Pricing can be used as a policy to achieve strategy • Cons • Confusing to user • Complex accounting system • Incomplete control of IS/IT resource • Need continuous review of charging policy • Conflict in IS/IT department

  24. Service Charging and IS • Service center (no charge out & leading edge: high potential • Cost center (average cost & scarce resource): support • Cost center (standard cost & monopoly): key operational • Profit center (market price & free market): support & high potential • Hybrid center (flexible & centrally planned): strategic and potential

  25. Points to Remember • Investment issues • Evaluating IS/IT investment • Setting priorities for applications • Benefit management • IT service charging

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