MIS 301 Information Systems in Organizations

1. MIS 301Information Systems in Organizations Dave Salisbury salisbury@udayton.edu (email) http://www.davesalisbury.com/ (web site)

2. Planning, Justifying & Paying for IS • Discuss the importance of aligning information systems plans and business plans. • Discuss the major issues addressed by information systems planning. • Identify the major aspects of the economics of information technology. • Describe approaches for evaluating IT investment, and briefly describe methods of justifying IT investment. • Identify the advantages and disadvantages of outsourcing.

3. Four Phases of IT/IS Planning • Strategic IT Planning • Information Requirements Analysis • Resource Allocation • Project Planning

4. IT Planning — A Critical Issue for Organizations • Business-led approach: The IT investment plan is defined on the basis of the current business strategy. • Method-driven approach: The IS needs are identified with the use of techniques and tools. • Technological approach: Analytical modeling and other tools are used to execute the IT plans. • Administrative approach: The IT plan is established by a steering committee. • Organizational approach: The IT investment plan is derived from a business-consensus view of all stakeholders in the organization

5. IT Planning — A Critical Issue for Organizations Continued • Strategic IT planning: Establishes the relationship between the overall organizational plan and the IT plan. • Information requirements analysis: Identifies broad, organizational information requirements to establish a strategic information architecture that can be used to direct specific application development. • Resource allocation: Allocates both IT application development resources and operational resources. • Project planning: Develops a plan that outlines schedules and resource requirements for specific IS projects.

6. Applications Portfolio

7. Phase 1-Planning • IT Alignment with Organizational Plans: identify information systems applications that fit organizational objectives and priorities • Analyze environment and relate to IT • External environment - industry, supply chain, competition • Internal environment (competencies, value chain, organizational structure) • Complexity of alignment increases with the complexity of the organization

8. Planning Models • Business Systems Planning (BSP) • Business processes • Data classes • Critical success factors (CSFs) – those few things that MUST go correctly for system success. • What objectives are central to your organization? • What are the critical factors that are essential to meeting these objectives? • What decisions or actions are key to these critical factors? • What variables underlie these decisions, and how are they measured? • What information systems can supply these measures?

9. Critical Success Factors

10. Phase 2-Requirements Analysis • Information requirements analysis • Analysis of the information needs of users • Ensure that the various information systems, databases, and networks support the requirements identified in Phase 1. • More comprehensive level of analysis • Data needs (e.g., in a data warehouse or a data center) • requirements for the intranet, extranet, and corporate partners • Identifies high payoffs IT projects • Provides an architecture that leads to a cohesive, integrated systems

11. Phase 3-Resource Allocation • Developing plans for • Hardware, software, data networks and communications • Facilities, personnel, and financial plans • Difficult and in many cases a political process. • opportunities and requests for spending far exceed the available funds. • some projects and infrastructures are necessities, and therefore not negotiable • Do we outsource some of this?

12. Phase 4-Project Planning • Specific applications can be planned, scheduled, and controlled. • Vendor management and control • Outsourcing decisions • Specific Requirements • Precisely what we are going to do • Start and end dates • Resources and authority • Specific tasks & responsibilities • Tools exist for planning and control: • PERT & CPM • Gantt Charts

13. IT Architectures & Infrastructure • Information technology architecture refers to the overall structure of all information systems in an organization. • Applications for management levels • Applications for functions • Infrastructure • Factors that influence use of IT infrastructure levels • Information intensity • Strategic focus • Industry • Market volatility • Business unit synergy • Strategy and planning

14. IT Architectures • Architectural choices are: • Centralized computing • Distributed computing • Blended computing • End-user configurations (workstations): • Centralized computing with the PC functioning as “dumb terminals” or “not smart” thin PCs. • A single-user PC that is not connected to any other device. • A single-user PC that is connected to other PCs or systems, using a telecommunications connections. • Workgroup PCs connected to each other in a small P2P network. • Distributed computing with many PCs fully connected by LANs via wireline or Wi-FI.

15. IT Planning Challenges • Interorganizational Systems (IOS) • Involve several organizations - may be complex • IT planners should focus on groups of customers, suppliers, and partners • Multinational Corporations • Different laws, politics and society • Tend to decentralize IT planning and operations • Other Problems for IT Planning • Cost, ROI justification • Time-consuming process • Obsolete methodologies • Lack of qualified personnel • Poor communication flow • Minimal top management support • Turbulent, uncertain environments

16. Computing Power vs. Benefits • Enables most organizations to decrease costs thereby enhancing efficiency • Enables creative organizations to find new uses for information technology and enhance their effectiveness • What is the payoff from IT investments? • How can it be measured? • Productivity • Benefits • Costs • Other economic aspects of IT

17. Moore’s Law

18.  Measuring Benefits and Costs • Infrastructure versus specific applications • IT infrastructure provides the foundations for IT applications • data center • Networks • data warehouse • knowledge base • Long-term, shared investments, spread across • IT applications are specific systems and programs for specific tasks • Payroll • inventory control • order taking • Some departments, not others • Evaluating IT investments • Value of information in decision-making • Traditional Cost-Benefit analysis (tangibles) • Scoring Matrix or Scorecard (intangibles)

19.  Evaluating the value of information • Difference between the net benefits (benefits adjusted for costs) of decisions made using information and the net benefits of decisions made without information • Assumption: Systems that provide relevant information to support decision making will result in better decisions, and therefore they will contribute toward ROI. However, this may not always be the case.

20. How to justify IT economically • Financial Cost-benefit analyses • Net Present Value (NPV) • convert future values of benefits to their present-value eqivalent • Discounted at the organization’s cost of funds • Compare the present value of the figure benefits to the cost required to achieve these benefits • Return on Investment (ROI) • measures the effectiveness of management in generating profits with its available assets • Calculated by dividing net income attributable to a project by the average assets invested in the project • How do you decide the costs and benefits, particularly of options not taken?

21. Evaluating and Justifying IT Investments • IT investments pose different problems • Expected value (EV) of possible future benefits by multiplying the size of the benefit by the probability of its occurrence. • Relationship between intangible IT benefits and performance is not clear • Appraisal methods • Financial (NPV & ROI) methods consider only impacts that can have monetary value. They focus on incoming and outgoing cash flows. • Multi-criteria (information economics and value analysis) appraisal methods consider both financial and non-financial impacts that cannot be expressed in monetary terms. These methods employ quantitative and qualitative decision-making techniques. • Ratio (IT expenditures v. total turnover) methods used several ratios to assist in IT investment evaluation. • Portfolio methods apply portfolios (or grids) to plot several investment proposals against various decision-making criteria.

22. “Costing” IT Investments - evaluating • Placing a dollar value on the cost of IT investments is not simple – consider fixed costs. • Life Cycle Cost; costs for keeping it running, dealing with bugs, and for improving and changing the system • There are multiple kinds of values (tangible and intangible) • Improved efficiency • Improved customer relations • The return of a capital investment measured in dollars or percentage • etc. • Probability of obtaining a return depends on the probability of implementation success

23. Intangible benefits – evaluating • Intangible benefits • increased quality • faster product development • greater design flexibility • better customer service • improved working conditions for employees. • Difficult to quantify them with a monetary value • Complex but potentially substantial • Evaluating Intangible Benefits • Make rough estimates of monetary values for all intangible benefits, and then conduct a NVP or similar financial analysis. • Scoring Matrix or Scorecard

24. Handling Intangible Benefits (Sawhney) • Supplement hard financial metrics with soft ones. • Identify short-term benefits that can justify the initial investment in the project. • Keep an open mind about where the payoff from IT and e-business projects may come.

25. Business Case Approach – evaluating • A business case - document used by managers to garner funding for specific projects • Bridge between the initial plan and its execution to clarify how the organization will use its resources • justifying the investment • to manage the risk • determine the fit of an IT project with the organization’s mission

26. Investment justification - evaluating

27. Total cost of ownership (TCO) includes: Acquisition cost (hardware & software) Operations costs (maintenance, training, operations, etc.) Control cost (standardization, security, central services) Total cost of ownership

28. Desktop hardware Software Servers Systems management Storage management Operations labor Help desk costs Communications Development End user costs Hidden costs Total Cost of Ownership – PC’s

29. One representative sample… • Thin clients versus thick clients • Thin clients (minimal storage, a.k.a. networked PC) - $ 3,787 per year • Thick clients (traditional PC) - $ 6,880 per year • Multiply that difference by say, 500-1000, and I think you see a trend developing • Why do we spend money on Flat Panels?

30. Information economics • Organizational objectives • Intangible benefits • Scoring methodologies • Evaluate alternatives by assigning weights and scores • Identifies all key performance issues • Assigns weights • Scores each issue • Multiply score by weighting factor and totaled • Highest weighted score is judged best

31. Real option valuation and assessing the value of an IT Investment • Recognizes IT investments can increase future performance • Looks for opportunities embedded in capital projects • Looks at opportunity cost • Common types of real options • Expand a project (so as to capture additional cash flows) • Terminate a project that is doing poorly (to minimize losses) • Accelerate or delay a project • Appropriate when: • most decisions based on the assumption that investments are strategic • expected returns cannot be readily measured in monetary terms • A lot of web-based systems might fit into this category

32. Tracking/allocating the costs of IT/IS • Accounting systems should provide an accurate measure of total IT costs for management control • Users should be charged for shared IT investments and services in a manner that is consistent with the achievement of organizational goals • Chargeback • All expenses go into an overhead account. With this approach, IT is “free” and has no explicit cost, so there are no incentives to control usage or avoid waste. • Cost recovery is an approach where all IT costs are allocated to users as accurately as possible, based on cost and usage levels. • Behavior-oriented chargeback systems set IT service costs in a way that meets organizational objectives, even though the changes may not correspond to actual costs.

33. “Costing” IT – Economic Strategies • Outsourcing • A strategy for obtaining the economic benefits of IT and controlling its costs by obtaining IT services from outside vendors rather than from internal IS units within the organization. • Offshore outsourcing of software development • ASPs & Utility Computing – Application service providers manage and distribute software-based services and solutions from a central, off-site data center via the Internet. • Management service provider – a vendor that remotely manages and monitors enterprise applications.

34. Benefits Avoid heavy capital investment, flexibility Improve cash flow and cost tracking Economies of scale Better access to latest technologies & skillsets More choice of platforms and software Faster development Focus on own “knitting” Less IT/IS staffing issues Clearly defined service levels Load balancing Concerns No strategic advantage from IT/IS Control over application development Dependent on vendor viability Creates potential redundancies Provider will service other companies (maybe competition), diluting their interest in you The loss of talent generated internally in IT/IS Employees may react badly Security concerns Outsourcing Benefits & Concerns