Matakuliah
Tahun
: A0304 - Evaluasi Efektivitas Sistem Informasi
: 2006
Issues and techniques for IT
evaluation
Pertemuan 07-09
1
Introduction
• How to convert the benefits based on IT
investment into measurable values
• Not all goods or services have to be traded
in order to establish value
• Balance sheet value of a business asset is
in no way related to its earning capability,
but management perception
2
Measuring business performance
•
•
•
•
What constitutes good performance?
Ratios
Inflation
An art and not a science
3
When is performance measured
• Where the amount of funds involved is not
substantial
• Where the performance or value is taken
for granted
• Where the organization classifies the
activity in terms of an ongoing expense
rather than as a capital investment
4
Why IT investment is heavily
scrutinized
• The amounts of money are frequently quite
substantial
• Many IT investments are not always perceived
as being close to revenue or profit-making
aspects of business
• There is not always agreement as to the IT
investment need, value, or performance
• Much IT expenditure, especially on hardware,
has traditionally been capitalized
• There has been growing dissatisfaction at the
performance of IT functions.
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Assessment of IT effectiveness
• Accountant  ROI?
Operating Mgmt  what company get
from IT investment?
BOD  are computers enhancing
business performance?
• Evaluate IS Dept : compare to
competitor and to historic performance
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Investment purposes, types, & evaluation techniques
Investment purpose Investment type
Evaluate/measure
Business survival
Continue/discon
tinue business
Cost benefit
Must do
Improving efficiency Vital/core
Improving
effectiveness
Critical/core
Business analysis
Competitive leap
Strategic/
prestige
Architecture/
must do
Strategic analysis
Infrastructure
Very broad terms
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Issues strategy differentiation
• Does IT lead to adding information to the
product?
• Does IT application make it easier for clients to
order, buy, and obtain delivery of the goods or
service?
• Are there fewer errors in processing the
business?
• Have the after sales service aspects of the
business been enhanced?
• Strategy of cost leadership
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Issues strategy low cost leadership
• Will IT application result in direct cost
reductions?
• Will there be labor reductions?
• Will the time to market improve?
• Will there be greater utilization of
equipment?
• Will Just-In-Time manufacturing be
possible?
9
Different approaches to measurement
• Physical counting
• Assessment by ordering, ranking, or
scoring
10
Examples of satisfactory and poor
systems objectives
Satisfactory objectives :
• Reduce inventories by 5% by value and 10%
by volume within the next 180 days
• Increase ROI by 1% by the end of year
• Improve staff acceptance if new IT system
Poor objectives :
• Improve profitability
• Reduce errors
• Enhance cash flow
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Steps in measuring intangible benefits
• Conceptualize the chain of cause-and-effect events
that may result from the introduction of the system
• Identify how it will be possible to establish the
changes that are likely to occur as a result of
introduction of the information system
• Consider how the size of the change may be
measured
• Where the effect of the system is clear, the analyst
may be proceed with the next three steps
• Measure the size of change
• Put monetary value on changes that have been
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observed
3 Most frequently encountered
1. Noise ; effect of IT investment may be
masked by other events in the
environment
2. Fluctuations in short term ; due to
seasonal changes in demand, cost or
prices
3. Lies,
damn
lies,
and
statistics;
assumptions may often be manipulated
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Specific Methodologies
1.
2.
3.
4.
5.
Strategic match analysis and evaluation; issues
not well understood, unaware of strategy
Value chain assessment; organization and
industry internal value, difficult to obtain data
Relative competitive performance ; competitor’s
acquisition of IT, difficult to compare benefits of
different systems, uncertainty competitor’s plan
Proportion of management vision achieved ; high
degree of subjectivity, not easy to admit failure
Work-study assessment ; regular review of how
the work in department is performed, changes in
work patterns
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Specific Methodologies (cont’d)
6. Economic assessment; theoretical approach,
mathematical terms, abstract
7. Financial cost benefit analysis; subject to
manipulation, require a sound infrastructure
8. User attitudes; individual user, survey method,
technical approach
9. Value-added analysis; assess the value of the
system first, costs under control
10.Return on management; stimulate re-thinking,
not easy to operation
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Key Business Application
Function
Application/Systems
Product design &
development
•Product engineering
•Project control
Operations
•Labor control
•Inventory management
•Procurement
Marketing
•Streamlined distribution
•Telemarketing
Sales
•Advertising monitor
•Sales consolidation
Administration
•Planning and budgeting
•Office automation
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Management Value Added
Revenue Purchases and taxes =
Business Value Added –
Dividend –
Operation cost –
Management cost =
Management Value Added
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Questions to be addressed
• What assumptions underlie the cost and benefit
calculations? What goes into the investment?
• What costs should be attributed to a system?
• What benefits have been identified and for how
long?
• How are future benefits adjusted for inflation?
What measure of inflation has been used?
• How are future exchange rates accommodated?
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